After years of sustained rallies, semiconductor stocks are now flashing one of the most extreme technical warning signals seen in more than two decades.
In this trend, stocks tracked under the PHLX Semiconductor Index have seen the weekly Relative Strength Index (RSI) reach 85.54, marking the highest reading since the height of the Dot-com bubble.
The index has surged above 11,775 in a rally fueled by booming demand for artificial intelligence chips, though the sharp momentum has increased concerns about a potential correction.
Notably, the RSI, a momentum indicator measuring price strength on a scale of 0 to 100, is now at levels that have historically signaled overbought conditions and preceded notable pullbacks on the weekly timeframe.
The semiconductor sector has posted some of its strongest gains in years, driven by enthusiasm around AI infrastructure. However, such stretched conditions can also indicate buyer exhaustion, prompting traders to watch for signs of weakening momentum.
Concerns over the sustainability of the AI boom have also grown. Major technology companies are expected to spend more than $700 billion on data center expansion in 2026 alone, directly benefiting chipmakers.
Still, skeptics warn of risks tied to diminishing returns, energy constraints, and uncertainty over how quickly AI investments can generate meaningful profits.
Market concentration has added to the unease, with a small group of AI-linked stocks driving much of the gains in major indices.
Economist warn of possible crash
Some investors, including Michael Burry, have compared current conditions to the speculative excesses of the late 1990s, warning that valuations may be detached from realistic growth expectations.
Higher interest rates, slower AI adoption, or disappointing returns from massive infrastructure spending could trigger a sharp reassessment, while early signs of strain, including selective tech-sector layoffs, have further fueled concerns that the pace of investment may not be sustainable indefinitely.
Nevertheless, many analysts argue that today’s environment differs significantly from the Dot-com era. Leading AI and semiconductor companies, such as Nvidia (NASDAQ: NVDA), are generating strong earnings and cash flow, unlike many speculative late-1990s firms that lacked sustainable business models.
Demand for advanced chips is being driven by real-world needs in data centers, cloud computing, defense, robotics, and automation, while investment decisions appear more disciplined and supported by stronger corporate balance sheets.
As a result, supporters believe any pullback would more likely resemble a healthy consolidation or pause rather than a severe crash.
Upcoming earnings reports, interest-rate developments, and geopolitical events are expected to shape the market’s near-term direction.
