What happened yesterday is incredibly interesting. Last week, everyone was selling chip stocks. The semiconductor ETF lost 3.2%, marking its second consecutive weekly decline.
Investors were rotating out of chipmakers and into other sectors. Then, within just a few days, those same chip stocks reversed course and ended up leading the market rally. Panic one moment, euphoria the next.
Let's break down what happened.
Monday turned into a strong day on Wall Street. The Nasdaq gained 1.12%, the S&P 500 rose 0.7%, and although the Dow finished slightly lower, it had earlier climbed above 53,000 points for the first time in its history.
And what fueled the rally? Chips. The very same sector investors had been dumping just a week earlier.
Here's what happened. Western Digital surged 10%. AMD jumped nearly 8%. Taiwan Semiconductor and Marvell each gained around 6%. Arm and Intel climbed about 5%. Even ASML, the company that manufactures the machines used to produce semiconductors, rose nearly 5%. Meanwhile, the Technology Select Sector ETF advanced more than 2%.
The rally was not limited to semiconductor stocks. It lifted the entire technology sector. When the semiconductor industry gains momentum, the rest of tech often follows.
So why did sentiment shift so quickly?
Investors are increasingly betting that the artificial intelligence trade still has plenty of room to run. As prices pulled back, buyers stepped in to take advantage of the dip, purchasing shares they believed had become attractive after the recent decline.
Now let's get to the catalyst that sparked the rally. Every major move in the market usually needs one.
Broadcom announced that it is extending its partnership with Apple through 2031. The two companies will continue working together on custom ASIC chips, specialized processors designed for specific tasks. According to the announcement, these chips will be used across multiple future generations of Apple products.
Why does this matter?
Custom chips are becoming increasingly important for handling artificial intelligence workloads. Apple is also reportedly preparing a new generation of AI servers that it plans to introduce starting in 2027.
The market loved the news. Broadcom shares climbed as much as 6.3%, reaching $383. Over the past year, the stock has gained roughly 38%. Broadcom also works with other major technology companies, including Alphabet and Meta.
That partnership announcement provided the spark, and from there the rally spread across the semiconductor sector.
But Apple was not the only story.
On the same day, Micron announced a long term agreement with Ford. Under the deal, Micron will supply memory and storage products for Ford's vehicles.
This is not an isolated agreement. Just days earlier, Micron signed a similar deal with General Motors. In fact, agreements like these now account for roughly 40% of Micron's business, and the company expects that figure to eventually reach 50%.
Things became even more interesting when Citi published its latest view on the semiconductor industry.
The bank highlighted two key points.
First, it remains optimistic about Micron because it expects DRAM memory prices to rise during the second half of 2026.
Second, it is more cautious on Qualcomm, citing continued weakness in the smartphone market.
So why are DRAM prices expected to increase?
The answer is simple: supply shortages.
According to Citi, shortages of DRAM memory have become one of the biggest constraints on available computing power today. Citi is not alone in that view. Samsung is reportedly planning to raise DRAM prices by around 20% during the third quarter. At the same time, cloud GPU pricing at Amazon has also increased by roughly 20%.
In other words, memory is becoming scarce, and companies that control supply are gaining greater pricing power.
