AI in action · Markets
Chip ETF Down 29% as AI Investors Pay Up for Protection
The iShares Semiconductor ETF ended October 29% below its recent high, and options traders bought more downside protection than usual, CNBC reported.
The AI trade ended October in or close to a bear market while the wider stock market barely flinched. The iShares Semiconductor ETF was 29% below its recent high on Friday, October 30, and the Global X Artificial Intelligence & Technology ETF fell 4% on the week and 8% on the month, leaving it 15% below its summer record, CNBC reported. The S&P 500, by contrast, was only a few percent from its own record, held up by money moving into companies such as Procter & Gamble, Berkshire Hathaway, Coca-Cola, Walmart and Eli Lilly.
Friday alone showed the pattern. Intel fell 25% on weak revenue guidance, Micron 5.5% and Nvidia 4%, while the defensive names rose more than 1%. The week before had delivered Alphabet's worst trading day on record after its advertising sales missed estimates, with executive Philipp Schindler saying that strong growth in AI Mode queries had weighed on results because they currently earn less, and an Anthropic IPO filing that showed revenue growth slowing from the second quarter to the third. The common thread was a question about timing: whether AI revenue is arriving fast enough to justify the spending.
The options market is where the nerves show. Dennis Davitt, chief investment officer of Millbank Dartmoor Portsmouth, told CNBC that traders are buying more downside protection than usual, though he noted that less fear is priced into Meta options than into Amazon's. Cboe's JJ Kinahan said the AI boom is "in question" even if the reward eventually comes, and YieldMax strategist Mike Khouw said he is "a little worried about the trade." Steve Eisman, known from The Big Short, told CNBC on October 29 that he has become "much more conservative," shorting positions against his longs, though he is not net short.
Protection gets more expensive when everyone wants it at once. Put options, which pay off if a stock falls below a set price, cost more when implied volatility rises, so investors who hedge after a 29% drop pay much more than those who hedged near the top. That is why the CNBC piece framed the choice as taking profits or hedging rather than one or the other: trimming a position costs nothing in premium, while a put keeps the upside but carries a price that rises with the fear.
Not everyone reads the sell-off as the end. Davitt argued that confidence in AI's commercial prospects may actually be rising, pointing to products like Meta's Muse agent. But with Paul Tudor Jones putting the odds of a market "tipping point" at 60-40 earlier in October, and BTIG's Jonathan Krinsky having advised fading the chip rally, this week's reports from Palantir, AMD, Qualcomm and Arm arrive in a market that is already paying for insurance.
Sources: CNBC — AI stocks sell off as investors question AI spending returns, by Tobias Burns (Oct 30, 2026); CNBC — Steve Eisman gets more conservative with portfolio as AI trade nears 'tipping point' (Oct 29, 2026)