Chip stocks were not the only thing rattling markets this week. U.S. strikes on Iran resumed on 13 July and continued nightly through the period, reaching a ninth consecutive night by 19 July, alongside a reimposed U.S. naval blockade on Iranian ports; Brent crude jumped to its highest settlement level since mid-June on the news. Two U.S. service members were killed in an Iranian missile and drone attack in Jordan on 17 July, prompting further U.S. strikes in response, and Iran has since widened its own retaliation toward Kuwait and Jordan, with an adviser to Tehran’s supreme leader warning of a full-scale offensive should the campaign continue. That backdrop of renewed, live conflict, not merely the risk of one, adds a second source of volatility to a week in which the AI and chip trade was already reassessing itself on its own terms.

Chip stocks around the world fell hard between 13 and 19 July, with the Philadelphia Stock Exchange Semiconductor Index confirming a technical bear market after tumbling more than 20% from its late-June record. The move rippled through Canadian-listed technology, semiconductor and artificial intelligence funds, which posted weekly declines of between roughly 4.7% and 11.2%, even though several of the same funds remain up sharply for the year. The sell-off has raised a pointed question for investors holding AI exposure through Canadian ETFs: is this a healthy reset after an extraordinary run, or the start of a broader repricing of how much AI infrastructure spending is actually worth.

A Momentum Trade Unwinds

The scale of the reversal has been notable for its breadth. The semiconductor index sank about 10% over the week, its worst weekly performance in more than a year, though it remains up over 60% year-to-date. South Korea’s KOSPI slipped into a bear market last week despite being up nearly 62% for the year, Japan’s Nikkei fell into correction territory, and the S&P 500 Momentum Index, which had outperformed the broader U.S. market by more than two to one earlier in 2026, gave back 11% in July against a broader index that was little changed. Analysts broadly characterised the move as profit-taking and deleveraging rather than a fundamental reassessment: retail margin balances, assets held in leveraged exchange-traded funds and short-dated options volumes had all climbed sharply during the rally, leaving positioning vulnerable to a sharp reversal once sentiment turned.

Two specific developments triggered the latest leg down. A Chinese AI start-up released what it billed as the largest open-weight model available, reviving questions about how much of the return on Western AI infrastructure spending will accrue to the companies funding it. Separately, reports that Alphabet’s next flagship AI model is running months behind schedule unsettled investors just as the company’s own capital spending is projected to more than double this year to $187 billion. Alphabet shares fell 6.5% over two trading sessions on the news. Some of the year’s best-performing individual names were hit hardest: certain leveraged semiconductor exchange-traded products have fallen more than 50% from their late-June peaks, though they remain up well over 200% for the year, underscoring how much leverage had built into the trade.

The Reckoning Before Earnings: Capex Under the Microscope

The unwind arrives just as the companies responsible for the bulk of AI infrastructure spending begin reporting results. Tesla and Alphabet report first, on Wednesday, with Microsoft, Meta, Apple and Amazon following the week after; together these companies, alongside Nvidia, account for a large share of the AI capital spending now under scrutiny. Combined hyperscaler capital expenditure is forecast at up to $725 billion this year and is expected by consensus estimates to approach $900 billion in 2027. Analysts have said the debate has shifted from whether spending will continue to how quickly it converts into revenue: cloud gross margins, AI-related pricing and revenue generated per dollar of compute are now the figures investors are watching most closely. Notably, options activity late in the week leaned toward rotation into less-crowded parts of the market rather than a broad reduction of risk, and some of the hardest-hit chip names drew renewed buying interest, a sign that not all investors read the pullback as the end of the cycle.

Energy Risk and a Cautious Fed

The resumed Gulf conflict is not a one-week story, and its market implications extend well beyond the immediate oil price move already noted above. A further escalation, or a durable ceasefire, would each have very different consequences for the inflation and rate-cut debate now facing several major central banks. Higher, sustained energy prices would narrow the room available to central banks to cut rates, including for Federal Reserve Chair Kevin Warsh, whose policy flexibility is directly tied to how the situation develops over the coming weeks. Against that backdrop, Friday’s preliminary July PMI readings and new home sales data, together with Thursday’s initial jobless claims, will be watched closely for early signs of whether underlying economic activity can absorb both the technology sector’s volatility and any renewed energy price pressure.

What Earnings Week Could Decide for the AI Trade

With Tesla and Alphabet reporting on Wednesday and Intel and IBM also due through the week, the next several days should provide the clearest evidence yet of whether AI-related earnings can justify the spending levels investors have been questioning. Interactive Brokers and Charles Schwab report on Tuesday, offering an early read on how the volatility itself has affected trading activity. That earnings evidence is the backdrop against which the Canadian-listed technology and AI fund performance below should be read.

Canada’s AI and Technology ETFs

The Artificial Intelligence & Big Data theme fell substantially harder than the broader Information Technology sector over the week, consistent with the sharper declines seen in pure-play semiconductor and AI names globally, yet both groups still recorded positive net inflows for the week, suggesting Canadian investors were largely buying into the weakness rather than retreating from it.

Who Fell Furthest, Who Kept Buying

The heaviest weekly losses among Canadian-listed funds came from direct semiconductor exposure. The iShares Semiconductor Index ETF - CAD (XCHP) fell 11.173% on the week, the steepest decline of any fund covered here, though it remains up 76.994% year-to-date and still drew over C$8 million in net inflows. The Global X Artificial Intelligence Semiconductor Index ETF - CAD (CHPS) fell 9.335% weekly against a 47.717% year-to-date gain, with over C$6 million of continued inflows.

A more mixed picture emerged elsewhere. The CI Global Artificial Intelligence ETF - CAD (CIAI), the largest fund in the AI theme by assets, fell 7.150% for the week and recorded zero net flow over the period, yet has seen almost C$85 million in net redemptions year-to-date despite a positive 19.298% year-to-date return, a divergence between price performance and investor flows worth noting, though not one this piece attempts to resolve. The iShares S&P/TSX Capped Information Technology Index ETF - CAD (XIT) fell 4.968% weekly, the smallest decline among the larger funds, but is the only fund in either table negative on a year-to-date basis, down 10.211%, a reminder that Canadian technology sector exposure and the global AI and semiconductor theme have not moved in lockstep this year; the fund still gathered over C$7 million in weekly inflows.

Smaller funds in the theme showed similarly varied patterns. The Global X Artificial Intelligence Infrastructure Index ETF - CAD (MTRX) fell 6.513% weekly against a 23.290% year-to-date gain, with no net flow recorded over the week. The Global X Artificial Intelligence & Technology Index ETF - CAD (AIQ) fell 8.403% and gathered just under C$1 million in inflows, while the smallest fund covered, the Evolve Artificial Intelligence Fund - CAD (ARTI), fell a comparatively modest 4.249% weekly and is up only 3.357% year-to-date, the lowest year-to-date return of any fund in either table, with a negligible net weekly flow.

This article was written on July 20th, 2026. Please note this article is for information purposes only and does not in any way constitute investment advice. It is essential that you seek advice from a registered financial professional prior to making any investment decision.