Gasgoo Munich- After the market closed on July 31, Xiaomin (a pseudonym) texted a friend a screenshot of her fund account with a stark realization: "I lost more money in my two semiconductor funds this month than I earn in a month of work."
In March, she poured 30,000 yuan of principal into two semiconductor-themed funds in a single lump-sum purchase. It was a rough start, but momentum turned positive in April. For three straight months, her account was in the green. By the end of June, her paper profit had reached roughly 16,000 yuan. Seeing her gains, plenty of friends followed suit, buying into the semiconductor fund frenzy.
Then came July, and the market took a sharp turn for the worse. In just over 20 trading sessions, Xiaomin's account bled more than 10,000 yuan, effectively wiping out the paper profits she had built up over the previous three months.
From a 50% gain to losing most of it in a single month, Xiaomin is a microcosm of the average retail investor.
In the first half of this year, semiconductors were one of the capital market's hottest tracks. An explosion in AI computing demand and the acceleration of import substitution convinced countless investors that chips were entering a new growth cycle. Yet, in just three months, the market harvested the "leeks"—a slang term for naive retail investors.
Image source: Huaban
I. Leaving Gold Behind
Rewind to the beginning of this year. Back then, Xiaomin's money was still parked in gold-related assets.
For years, gold has been the go-to safe haven for many investors. Rising economic uncertainty and intensified volatility in global markets drove gold prices steadily higher.
Image source: Chow Tai Fook
But as the year began, the gold market shifted. International gold prices oscillated at highs, while domestic gold ETFs and related funds came under pressure. For ordinary investors, gold's upside looked to be bumping against the ceiling. Xiaomin started hunting for a new direction. She noticed the market's conversation pivoting toward AI and chips.
Historically, chip demand came mostly from consumer electronics like phones and PCs. The AI era has changed that equation: data centers, servers, and high-performance computing equipment are now the new demand drivers. Training large models requires massive computing power, and running AI applications is equally resource-intensive. Behind all that computing power lies the chip.
As global tech giants doubled down on AI infrastructure, the semiconductor industry found itself facing renewed growth expectations.
At the same time, China's domestic semiconductor industry was driven by another critical logic: import substitution. In the past, China's chip supply chain relied heavily on overseas sources for key equipment and materials. But as external technology restrictions mounted, local enterprises accelerated the verification of domestic equipment and materials.
For capital markets, this shift signaled fresh investment opportunities. Take semiconductor equipment: previously, the market focused on whether a company could enter the supply chain. Now, driven by the push for localization, the focus has shifted to identifying which companies can actually achieve stable, mass deliveries.
The added demand from AI, combined with the growth space opened up by import substitution, forged a new investment narrative for the semiconductor sector.
For retail investors like Xiaomin, this was the next big thing. So, in March, she sold off her gold assets and allocated 30,000 yuan into two semiconductor funds.
II. Three Months of Tailwinds
When Xiaomin first bought in, she didn't see immediate returns. In March, her paper loss exceeded 5,000 yuan, and she considered selling. But after April, the market shifted, and her semiconductor funds entered a "bull run."
The first shift came in the memory chip supply chain. Within the semiconductor industry, memory chips have always been one of the most cyclical sectors. In recent years, sluggish demand for consumer electronics forced the storage industry into a prolonged destocking cycle, squeezing corporate profits.
But AI brought fresh demand. Whether training large models or running AI applications, vast amounts of high-performance memory are essential. Products like HBM and high-end DRAM have become critical components of AI servers.
Image source: Huaban
As demand grew, memory chip prices began to climb. TrendForce data shows that in the first quarter of 2026, contract prices for general-purpose DRAM surged 90% to 95% in a single quarter, while NAND Flash jumped 55% to 60%—and they're still rising.
The performance turnaround in supply chain companies further reinforced market confidence.
In overseas markets, SK Hynix's net profit reached 134 trillion won in the first half of the year, while Samsung Electronics' semiconductor division logged an operating profit of 147 trillion won over the same period, with AI server-related storage demand acting as a key catalyst. Meanwhile, Micron Technology's net profit exceeded 28 billion USD in the third quarter of 2026 (April–June), with its stock price up more than 7-fold over the past year. Notably, the market capitalizations of SK Hynix and Micron soared, breaking the 1 trillion USD mark.
A similar trend emerged in the domestic market. For investors, the semiconductor industry—which had previously existed mostly in the realm of "import substitution imagination"—began showing signs of actual order fulfillment, revenue growth, and profit realization.
Benefiting from this, local related companies saw both earnings and market capitalizations surge. For instance, Longsys reported a first-quarter net profit of 3.86 billion yuan, a 26-fold year-on-year increase. Biwin Storage saw its first-quarter revenue jump 3.4 times, achieving profitability for three consecutive quarters with gross margins rising to 53.3%. Demingli's first-quarter revenue grew fivefold, and its stock price has risen more than 150% this year.
These shifts in the industry eventually transmitted to the capital markets. The semiconductor sector became one of the hottest investment destinations. In the first half of the year, the Shenwan Semiconductor Industry Index accumulated a 105% gain, pushing the market capitalization to 14.1 trillion yuan. Continuous capital inflows into computing, storage, and equipment sub-sectors drove the semiconductor materials and equipment sector up 151.2%.
Amid this rally, Xiaomin's account kept hitting new highs. By the end of June, her 30,000 yuan principal had generated a paper profit of nearly 55%.
More importantly, making money reshaped her view of the market. When she first bought in, Xiaomin was just hoping for a short-term gain. But after three consecutive months of gains, she began to believe this wasn't just a routine market fluctuation, but a long-term opportunity driven by industrial trends. She started sharing her analysis with friends.
Like her, more and more investors started paying attention to semiconductor funds. The market chorus grew increasingly unified: AI is the definitive direction for the next few years, and chips are one of the core beneficiaries.
In this atmosphere, risks were selectively ignored. Because when prices are rising, everyone sees opportunity. And the market is most prone to change precisely when consensus is strongest.
III. Black July: Giving It All Back
At the end of June, Xiaomin was still riding the high of her profits. Instead of locking in her gains after three months of gains, she viewed the volatility in early July as a normal correction. In her eyes, since the industrial logic hadn't changed, a short-term dip might actually signal a new buying opportunity.
So, she injected another 20,000 yuan to average down on her two semiconductor funds during the pullback. But this time, the market didn't follow her script.
In July, the semiconductor sector cooled off rapidly. Early in the month, Xiaomin's account lost over 3,000 yuan; the bleeding continued over the next few sessions, with drops of nearly 2,000 yuan on both the 15th and 16th. By late month, the account saw another drawdown of over 2,000 yuan.
On July 30, the Nasdaq rallied, and the domestic semiconductor market followed suit the next day. Her funds edged higher, but the daily gain was only a few hundred yuan—just a third of the previous day's loss.
Ultimately, Xiaomin lost more than 13,000 yuan in July, leaving little of the paper profit accumulated over the prior three months. "It drops a lot in a day, but the rebound is tiny." That was the shared sentiment among many investors in July.
This July correction actually originated overseas before spreading to the domestic market.
In mid-July, news broke from South Korea: leading storage companies were facing antitrust investigations. The news spooked the market, sending Korean tech stocks lower first, with the Nasdaq coming under pressure shortly after. But the deeper cause was that after months of one-sided gains, the market's sensitivity to negative signals had skyrocketed.
The market began to re-evaluate the AI investment cycle and semiconductor valuations, causing significant volatility in SK Hynix's stock. It plunged nearly 40% from its June historical high (around 1.4 trillion USD) to the end of July—erasing roughly 500 billion USD in value. Stocks at Samsung Electronics and Micron were similarly impacted.
The domestic market felt the impact too. Storage supply chain companies like Longsys and Biwin saw their stock prices halved in July as the sector pulled back.
Image source: Finscope
At the same time, existing capital was being diverted. At the end of July, ChangXin Technology, China's domestic DRAM leader, listed on the STAR Market. Some funds within the market pulled out of old holdings to subscribe to the new ChangXin listing, further amplifying short-term volatility in the sector.
One netizen compared the semiconductor sector to a "casino": "The biggest feature is that money runs faster than anywhere else; when the leeks can't handle the drop, they cut their losses and surrender."
Investor Xiaohua (a pseudonym), influenced by Xiaomin, entered the market during the Q2 rally. Watching her paper losses expand in July, panic eventually took over. She chose to cut her losses and exit on the last trading day of the month. Across major social platforms, similar stories were everywhere.
IV. To Run or Not to Run?
Faced with a dark July, some chose to leave, others chose to hold and wait, and many remained undecided.
In a discussion titled "Should I sell my semiconductor funds?" on Xiaohongshu, a review of over 240 netizen comments found that 52% believed investors should sell, while 48% thought they should hold. This near-even split perfectly captures the current market dilemma.
Image source: Xiaohongshu
For those choosing to exit, the decision is driven by the losses visible in their accounts. Some noted that their previously accumulated profits had been largely swallowed up, figuring it was better to lock in what remained rather than wait.
Those staying put, however, believe the semiconductor logic remains intact. The two core drivers of the first-half rally—AI demand and import substitution—haven't disappeared.
Institutions also view semiconductors as a long-term growth story. Data from the Semiconductor Industry Association (SIA) shows global semiconductor sales reached 795.6 billion USD in 2025, with further growth expected in 2026. Consequently, these retail investors believe they can "weather the storm to see the moon."
But the problem with capital markets is this: an industry trending upward doesn't mean every stock will keep rising. In the first half of the year, semiconductor stock prices rose faster than the industry could deliver results.
When the market prices in years of future growth in advance, the focus of core investors shifts.
Previously, the question was: "Is there an opportunity in this sector?" Since July, the market is asking: "Can this company actually deliver?" This explains why the steepest drops during the correction were often in sectors that had risen the fastest.
Current disagreement among institutions centers on this very point.
Bulls argue that AI is still in an investment cycle, with HBM and DDR5 high-end memory demand having room to grow. They also point out that domestic semiconductor import substitution is steadily progressing.
Xue Hongwei, Chief Electronics Analyst at Guolian Minsheng Securities, believes that domestic semiconductors are entering a full-chain boom cycle driven by AI and import substitution, but that the market will increasingly focus on actual corporate performance.
JPMorgan agrees that AI infrastructure construction continues to drive storage demand, noting that major cloud providers are signing multi-year supply agreements to lock in capacity. In this context, high-end storage like HBM and DDR5 is breaking free from the boom-and-bust cycles of the past, offering potential for long-term, stable growth.
SK Hynix, a key supplier, recently announced it had signed five-year supply agreements with 10 core clients. The company emphasized that its capacity expansion is matched to real customer orders, suggesting a "low probability of oversupply in the medium to long term."
The cautious camp, however, is focused on valuation and market risks. Morgan Stanley warned that institutional ownership in the U.S. semiconductor sector is currently crowded. The first-half rally has already fully digested upwardly revised earnings expectations, leaving limited room for further short-term valuation expansion.
Bank of America noted that the hype phase for the AI trade is over, and market conditions will begin to diverge. A company's technical barriers and ability to realize profits will become the core standards determining stock performance.
Image source: Finscope
Investors tracking U.S. stocks felt the pain more directly. One investor shared on social media: "On July 30, my U.S. semiconductor holdings rose 25%, but I'm still two or three daily limit-ups away from breaking even."
Huafeng (a pseudonym), who also follows the market, holds a more cautious view. He believes U.S. stocks will recover but advises retail investors against adding leverage. "The U.S. is in a top zone too." The hardest part of investing isn't taking profits, it's stopping losses in time. "When the market is weak, trade less or not at all. First, clarify your own expectations and risk tolerance."
Conclusion: Not Ready to Leave the Table
Because her losses were within her tolerance range, Xiaomin didn't sell, but she has no plans to buy the dip either. This captures the exact mindset of most trapped retail investors.
Entering August, the semiconductor sector's start has been unpredictable. On Monday, Xiaomin lost over 1,000 yuan; on Tuesday, she recouped more than 1,500 yuan; and the market continued rising on the 5th and 6th. After four trading days, Xiaomin's August account finally turned positive.
She calculated that she needs another 30% gain to return to the highs of late June. But one securities analyst remarked: "The semiconductor industry is too volatile; everyone's positions are light right now." He does not recommend retail investors add to their positions.
For Xiaomin, the massive July drawdown brought a cognitive shift. She clearly realized that even in a sector backed by solid, long-term industrial trends, the market never moves in a straight line up.
Xiaomin drew a line for herself: sell once she hits a predetermined profit target. It sounds familiar. Months ago, when her account was showing a profit, she told friends the same thing: "I'll sell if it goes up more." But then it dropped all the way back, and she regretted it every time she checked her account. Xiaomin isn't even sure if she'll actually be able to let go when the price hits that line.
At the gambling table, winners want to win the next hand, and losers want to win their money back before leaving. The script never changes.
(Out of respect for privacy, most interview subjects in this article are referred to by pseudonyms.)
