JPMorgan Warns AI Chip Stocks Face Forced Selling Risk as VaR Models Trigger at Record Valuations

According to JPMorgan Chase's latest report, AI chip stocks risk a technical selloff as Value-at-Risk (VaR) models force institutional investors to reduce positions once market volatility breaches risk thresholds. The bank warned of a self-reinforcing cycle: falling prices trigger rising volatility, which prompts forced selling, further depressing valuations—potentially disconnected from fundamentals.

JPMorgan noted chip stocks are among the market's most crowded trades, with holdings concentrated at extreme levels. The Philadelphia Semiconductor Index fell over 10% earlier this month amid overheating concerns before rebounding to new highs. Bank of America's latest fund manager survey also confirmed "long semiconductors" as the most crowded single position among global institutions. A structural concern: chip sector weight in major indices has grown roughly 6 times faster than its revenue contribution, suggesting valuations are expanding far beyond underlying business improvement.