Sara Awad of Tech Contrarians expects semiconductor stocks to face additional downside during the second half of 2026, arguing that elevated expectations and shifting supply conditions are creating a tougher setup even as long-term AI demand remains compelling. The warning comes after strong earnings failed to lift several industry leaders, with Taiwan Semiconductor Manufacturing, ASML, and Samsung Electronics all posting solid results yet their shares still moved lower, suggesting investors had already priced in much of the good news. Awad believes supply dynamics are becoming increasingly important, arguing that the recent semiconductor shortage has been driven more by constrained supply than exceptionally strong end demand, while PC and smartphone markets are expected to contract by double digits this year. As additional capacity comes online, semiconductor companies could lose some of the pricing power that helped fuel the sector's earnings surge, and memory stocks may be especially vulnerable, with SK Hynix shifting capacity toward general-purpose DRAM and rising Chinese production as potential sources of additional supply that could pressure pricing. Still, Awad is not abandoning the broader AI chip thesis, expecting AI infrastructure spending to increasingly shift toward lower-cost computing solutions such as ASICs, potentially spreading gains beyond the sector's current winners, creating a more selective setup where companies with realistic expectations and exposure to efficient AI compute could outperform while richly valued semiconductor names dependent on sustained shortages and pricing power may face further downside.
