* Intel ( INTC ), Texas Instruments ( TXN ) due to report this week

* Semi index is down about 18% this month but up sharply for

2026

* US semi-related earnings overall seen up 133% year over

year for Q2

By Caroline Valetkevitch

NEW YORK, July 20 (Reuters) - Chipmakers are in focus on

Wall Street, with their shares turning mercurial this month and

investors banking on a few dozen newly valuable companies to

deliver nearly half of S&P 500 profit growth for the second

quarter.

The PHLX Semiconductor index has surged this year,

reflecting massive gains at firms such as Micron Technology ( MU )

, Advanced Micro and Broadcom ( AVGO ), but lately

the 30-stock index has become a volatility show. The index is up

65% for the year, compared with a 9% gain in the S&P 500,

but is off 18% for July after swinging at least 3 percentage

points up or down on half of the month's 12 trading days.

The semi index also ended Friday down just over 20% from its

late-June all-time closing high.

Worries about the sustainability of AI demand for chips and

the boom-bust trading in semis have prompted investors to

reassess the sector. Results should be strong, but will they be

enough to break the summer swoon? And if not, does a rockier

summer lie ahead for the rest of the market, given the scale of

this surging sector?

"The daily moves for companies this big are just shocking,"

said Rick Meckler, partner at Cherry Lane Investments, a family

investment office in New Vernon, New Jersey. "Would the earnings

picture change that? Certainly a disappointing outlook could."

BIG GAINS ON THE BOTTOM LINE

Earnings for S&P 500 semiconductors and semi equipment

companies are forecast to rise 133% for the second quarter from

a year ago, with the group expected to contribute about 44% of

overall S&P 500 company earnings gains, according to Tajinder

Dhillon, head of earnings research at LSEG.

Earnings for S&P 500 companies overall are expected to have

increased 26% in the second quarter from a year ago, based on

LSEG data as of Friday.

Among U.S. chipmakers, Intel ( INTC ) and Texas Instruments ( TXN )

are due to give results this week. Nvidia's ( NVDA )

results are not due until late August.

But the market reaction to some prominent earnings reports this

past week suggests sentiment has begun to shift. On Thursday,

U.S.-listed shares of Taiwan Semiconductor Manufacturing ( TSM )

, the world's largest contract chipmaker, slipped even

though the company posted a 77% jump in second-quarter net

profit and beat market forecasts.

Earlier this month, shares of Samsung Electronics ( SSNLF )

fell sharply even though the company reported a 19-fold jump in

second-quarter operating profit.

SCRUTINIZING THE ROLE OF LEVERAGE

Market watchers in part pin the volatility on the SOX and its

constituents becoming retail favorites and fueling the rise of

leveraged exchange-traded funds. Leveraged ETFs amplify market

volatility by creating additional demand for shares when they

rise and prompting more selling when they fall.

"One thing that's driven a lot of these stocks has been

option activity by retail investors. That's a big factor in just

how volatile the stock moves have become," Meckler said.

South Korea's financial regulator on Thursday unveiled

regulatory measures to ease market volatility triggered by

single-stock leveraged ETFs. These ETFs, linked to chipmakers

Samsung Electronics ( SSNLF ) and SK Hynix ( SKHY ), were introduced in

South Korea in late May.

"While the performance of the semiconductor space has been

something to behold, so too has its volatility," BTIG wrote in a

recent note. That has set off some ominous signals, with "many

of them rhyming with the March 2000 peak," it added.

Rising AI spending has helped drive the chips frenzy, said

Jake Dollarhide, chief executive officer of Longbow Asset

Management in Tulsa, but worries are now taking hold that the

optimism is overheated.

"This chip demand for AI is not a forever scenario,"

Dollarhide said. And during the earnings season, "anybody who

disappoints is going to get clobbered."

Chipmakers have long been considered cyclical companies

whose rise and fall depend in large part on activity elsewhere

in the global economy. The rise of AI has intensified that

relationship.

One reason for optimism may be that it is more than just

data center exposure that is boosting demand, said Daniel

Morgan, portfolio manager at Synovus Trust in Atlanta, citing

industrial electronics, wireless communications and cars.

"You're seeing a broadening out," he said.

"The only place where I still see continued weakness is in

the chips that go into handsets," he said, noting that Qualcomm ( QCOM )

is among those chipmakers.