Entering August, the previously deeply corrected Shanghai A-share semiconductor sector has staged a rebound. Data from iFinD shows that as of August 11, 186 stocks in the semiconductor sector posted a weekly gain of 15.04%, with single-day gains exceeding 5% on both August 4 and August 5. Industry insiders note that the AI narrative is shifting from being driven by "faith" to being validated by earnings, and the subsequent recovery of the semiconductor sector is expected to diverge.
In July, the market paid the "price" for its earlier optimism. The Shanghai A-share semiconductor sector saw a significant correction that month. After touching its year-to-date high of 11,931.27 points on July 1, the CSI Semiconductor Industry Index plunged 9.36% on July 2, ultimately falling 28.25% for the entire month. The Guozheng Semiconductor Chip Index and the CSI Semiconductor Industry Selection Index also experienced sharp declines in July, falling 33.93% and 31.62%, respectively. Looking at individual stocks, according to the Shenwan secondary industry classification, excluding JieLi Technology and Ultra-Pure Applied Materials which listed in August, only Bestechnic and ChangXin Technology posted gains among the 184 semiconductor stocks in July. Meanwhile, 29 stocks saw their share prices more than halve during the month, with MEMSensing Microsystems, Xi'an Yicai, and Demlisy leading the declines at 66.50%, 59.19%, and 59.07%, respectively. Beyond these 29 stocks with "halved" prices, the vast majority of semiconductor stocks experienced varying degrees of decline. Specifically, 50 stocks fell between 40% and 50%, accounting for 27.17% of the total; 48 stocks fell between 30% and 40%, accounting for 26.09%; 39 stocks fell between 20% and 30%, accounting for 21.20%; 11 stocks fell between 10% and 20%, accounting for 5.98%; and 5 stocks fell less than 10%, accounting for 2.72%.
Amid the significant stock pullbacks, funds heavily weighted in the semiconductor sector also saw their net asset values plummet. In one notable case, a fund manager issued a public apology. Tao Diwei, fund manager at Jiahe Fund, apologized in a public letter released on July 31 for the sharp decline in the NAV of his Jiahe Ruijin Hybrid A and C funds. According to iFinD data, compared to their previous NAV highs, the NAVs of Jiahe Ruijin Hybrid A and C funds had fallen by 42.63% and 42.68% as of July 30. "The main reasons for this round of adjustment are a triple combination of valuation digestion, crowded positioning and deleveraging, and the AI narrative's trial," said Xie Shiqi, a researcher at Geshang Fund. He noted that valuations in the electronics and communication sectors were at high levels, and capital crowding led to valuations prematurely discounting future earnings expectations. The sector's trading concentration even reached historic highs, accumulating a large amount of profit-taking. "Counter-narratives to AI have always existed, and the market has now begun to seriously calculate when large-model investments will translate into revenue, whether computing power investment can be sustained, and whether downstream demand can absorb the capacity," Xie analyzed. On this basis, any adjustments to capital expenditure plans or earnings guidance from leading companies are amplified into a repricing of the entire supply chain. The overall adjustment in July was essentially the market "paying the price" for its earlier optimistic pricing.
The sector's bounce was met with "sell on strength" withdrawals. Entering August, after a sharp decline of 5.84% on August 3, the semiconductor sector rallied for four consecutive trading days before edging down 0.36% and 1.16% on August 10 and 11, respectively. In terms of valuation, the trailing twelve-month price-to-earnings ratio (PE-TTM) of the semiconductor sector stood at 142.38 times on August 11, a decrease from the high of 178.65 times seen at the end of January, but still at a relatively high level. Looking at individual stock performance, most stocks recovered after the deep correction in July. iFinD data shows that as of the close on August 11, excluding JieLi Technology and Ultra-Pure Applied Materials, only 6 of the 184 semiconductor stocks fell, with the largest decliner, Bestechnic, dropping only 7.45%. Among the 178 stocks that rose, KweiTe led the gains with a 54.19% increase, with 116 stocks rising by more than 10%.
During the sector's rebound, fund holders exhibited a "sell into strength" pattern. iFinD data shows that over the past week, 11 semiconductor-themed ETFs saw net capital outflows due to subscriptions and redemptions. Among them, the Huaxia SSE STAR Market Semiconductor Materials and Equipment Theme ETF recorded a net outflow of 49.09 billion yuan from subscriptions and redemptions in the past week. Following the slight pullback in the semiconductor sector on August 11, this same ETF saw a net inflow of 4.34 billion yuan from subscriptions and redemptions on that day.
Regarding the outlook for the semiconductor sector, Xie Shiqi commented that from an industrial fundamentals perspective, the demand side of the sector remains robust, the industrial logic remains unchanged, and the high industry boom continues. However, after the sector's rise in recent years, the market is no longer paying a premium for the AI narrative. Instead, it demands to see the sequential delivery of orders, revenue, and gross margins. In Xie's view, the sector's future trajectory will feature divergence. "Leading companies with genuine earnings support, high technological barriers, and positions in core links will achieve valuation repair after the adjustment. Targets lacking fundamental support and relying solely on sentiment-driven speculation will face a sustained valuation correction," Xie emphasized. He stressed that the AI narrative is transitioning from being faith-driven to being validation-driven, and future earnings reports will become a key differentiator. "Whether the capabilities of large models continue to improve, the profitability of leading companies, the stability of global capital expenditure growth, and the commercialization progress in the AI field are all worth watching," Xie noted. He advised investors against participating in the semiconductor sector's market games with a "bet on a turnaround" mentality, recommending instead phased investments at different price levels. He suggested prioritizing sectors with proven earnings, cash flow, and valuation safety margins, while avoiding targets that are purely thematic, overvalued, and lack earnings support.
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