What Happened?
A number of stocks fell in the morning session after investors reassessed stretched valuations following a period of strong gains.
The tech-heavy Nasdaq fell as much as 1.6%, with the S&P 500 also declining. The pullback was exemplified by AI firm Palantir Technologies, which dropped over 7% despite reporting better-than-expected sales. This negative reaction to positive news suggests investors are concerned about extreme valuations and are engaging in "long liquidation"—selling positions to lock in profits after a significant rally.
Adding serious weight to this caution, leadership at both Goldman Sachs and Morgan Stanley highlighted the possibility of a correction in the equity markets over the next couple of years. Despite the euphoria driven by AI optimism and the promise of future rate cuts, these banks viewed this cooling-off period not as a disaster, but as a necessary and healthy feature of a long-term bull market.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Analog Semiconductors company Microchip Technology (NASDAQ: MCHP) fell 3.2%. Is now the time to buy Microchip Technology? Access our full analysis report here, it’s free for active Edge members.
- Analog Semiconductors company onsemi (NASDAQ: ON) fell 4.2%. Is now the time to buy onsemi? Access our full analysis report here, it’s free for active Edge members.
Zooming In On onsemi (ON)
onsemi’s shares are extremely volatile and have had 32 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 8 days ago when the stock gained 4.8% on the news that UBS raised its price target on the stock to $55 from $50, while keeping a Neutral rating. The new price target represented a 10% increase. An analyst from the firm noted expectations for onsemi to report its third-quarter results near the middle of its guided range. This move occurred as the broader AI industry continued to expand, fueling growing demand for computing power within the semiconductor sector.
onsemi is down 21.3% since the beginning of the year, and at $48.56 per share, it is trading 34.3% below its 52-week high of $73.95 from December 2024. Investors who bought $1,000 worth of onsemi’s shares 5 years ago would now be looking at an investment worth $1,875.
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