A closely-watched index of semiconductor stocks has fallen into a bear market, unwinding a chunk of the blistering memory-led rally that saw the gauge more than double in just three months. The 105% surge, driven by artificial intelligence optimism and memory chip demand, has reversed as investors reassess valuations and macroeconomic headwinds.

The Philadelphia Semiconductor Index (SOX), which tracks the largest U.S. chipmakers, has declined over 20% from its recent peak, meeting the technical definition of a bear market. Memory giants like Micron Technology and SK Hynix led the advance but now face pricing pressure as supply catches up with demand.

Analysts cite weakening PC and smartphone shipments, elevated inventory levels, and rising interest rates as catalysts for the pullback. The sector's forward price-to-earnings ratio expanded rapidly during the rally, leaving little margin for error as earnings growth slows.

While long-term AI infrastructure spending remains intact, near-term volatility is expected to persist. Investors are rotating toward companies with diversified exposure and strong balance sheets, favoring quality over pure-play AI bets.