Chip Index Falls Nearly 14% as AI Deals Shift Risk to Customers

The Philadelphia Semiconductor Index has fallen nearly 14% since Oct. 6, sharpening questions about whether long-term chip commitments can protect suppliers as investors reassess the durability of the AI investment cycle.

Year-over-year semiconductor sales growth in the first half of 2026 reached its highest rate since the 1980s. TSMC recorded its sixth consecutive quarterly profit record, while Samsung Electronics set a record for a fourth straight quarter. On Friday, Oct. 16, the index was on course for an eighth straight daily loss.

TSMC plans to spend about $62 billion on capital investment this year, with spending potentially rising to $76 billion next year. It is funding expansion mainly through operating cash flow. Advanced chip manufacturing and memory production are concentrated among a small number of suppliers, strengthening their pricing power.

Long-term commitments may give manufacturers a buffer if AI investment cools. Nvidia has committed more than $250 billion to secure chips and related components through January 2029. Micron has locked in $32 billion of business through 2030 under take-or-pay contracts, which require customers to pay even if they do not take delivery.

Those deals also leave customers exposed if demand weakens. A sharp drop in demand and lower capital spending could put pressure on chip prices, company profits and highly valued semiconductor stocks. Long-term orders and prepayments may cushion manufacturers, but the contracts do not erase the industry’s cyclical risks.