Intel reports earnings as Wall Street questions durability of AI chip rally amid competition from Nvidia and custom platforms.

Expectations for semiconductor companies remain extremely high. Earnings for S&P 500 semiconductor and semiconductor equipment companies are forecast to rise 133% in the second quarter compared with a year earlier, according to LSEG data. The group is expected to account for approximately 44% of total S&P 500 earnings growth during the quarter, with overall S&P 500 earnings expected to rise 26% year over year.

Among major U.S. chipmakers, Intel and Texas Instruments are scheduled to report results this week, while Nvidia, the world's most valuable chip company and a key beneficiary of the AI boom, is not due to report until late August.

However, recent market reactions suggest investors have become less willing to reward strong results automatically. Taiwan Semiconductor Manufacturing Company, the world's largest contract chipmaker, saw its shares fall last week despite reporting a 77% increase in second-quarter net profit and exceeding analyst expectations. Similarly, Samsung Electronics shares declined sharply earlier this month despite the company reporting a 19-fold increase in second-quarter operating profit.

The recent weakness has raised concerns that expectations surrounding AI-related semiconductor demand may have become too optimistic. Some analysts point to the growing role of retail investors and leveraged exchange-traded funds in amplifying price movements. "One thing that's driven a lot of these stocks has been option activity by retail investors," said Meckler. "That's a big factor in just how volatile the stock moves have become."

South Korea's financial regulator recently announced measures aimed at reducing volatility linked to single-stock leveraged ETFs tied to major chipmakers Samsung Electronics and SK Hynix. Investment firm BTIG noted that while semiconductor stocks' performance has been remarkable, their volatility has raised concerns, with some market patterns resembling those seen before the 2000 dot-com bubble peak.

"This chip demand for AI is not a forever scenario," said Jake Dollarhide, CEO of Longbow Asset Management. "Anybody who disappoints is going to get clobbered."

Historically, chipmakers have been viewed as cyclical companies whose fortunes rise and fall with broader economic activity. The AI boom has strengthened demand but has also increased the sector's dependence on expectations surrounding a single technology trend.

Still, some investors argue that semiconductor growth is becoming broader than just AI data centers. Daniel Morgan, portfolio manager at Synovus Trust, pointed to demand from industrial electronics, wireless communications, and automotive applications as additional sources of growth. "The only place where I still see continued weakness is in the chips that go into handsets," he said, citing companies such as Qualcomm.