Chip stocks have recently experienced a significant decline, with the VanEck Semiconductor ETF (SMH) sinking 11.7% in a four-day trading week, marking its worst week since March 2020. The sharp decline in chip stocks, particularly in artificial intelligence favorite Nvidia, has raised concerns over U.S. economic growth and added to the market’s volatility this summer.
Despite the recent turmoil in chip stocks, Wall Street analysts are standing by their recommendations. Cantor Fitzgerald analyst CJ Muse emphasized the cyclical nature of the semiconductor industry and encouraged investors to “Just Keep Truckin’ On” amid the mid-cycle correction. Muse’s confidence in the semiconductor sector remains unwavering, even in the face of the recent market challenges.
While some chipmakers, such as Intel, have faced struggles and announced layoffs, much of the sell-off in chip stocks appears to be disconnected from underlying business fundamentals. For example, Broadcom saw a significant drop in its stock price despite surpassing analysts’ earnings and revenue estimates. Analysts believe that the sell-off may be driven more by market sentiment than actual business performance.
Despite the current challenges faced by chip stocks, there are opportunities for recovery and growth in the semiconductor industry. Companies like Broadcom are seeing positive signs of growth in their non-AI semiconductor businesses, and analysts remain optimistic about the long-term prospects of the sector. Looking ahead, investors will be closely monitoring updates from chipmakers at upcoming conferences to gauge the industry’s trajectory.
In response to the evolving landscape of the semiconductor industry, VanEck launched a new fund, the VanEck Fabless Semiconductor ETF (SMHX), focused on companies that design chips but are not major manufacturers. The fund aims to capture companies with asset-light business models, similar to Nvidia, that have the potential for innovation and long-term success in the AI space. This strategic move reflects a broader trend towards identifying opportunities within the semiconductor sector.
While chip stocks have faced challenges in recent weeks, there remains optimism about the industry’s future prospects. Analysts believe that the semiconductor sector’s cyclicality, coupled with the growing excitement around AI, will drive continued innovation and growth in the long term. Investors will continue to monitor developments in the chip industry and adjust their strategies accordingly to navigate the evolving market conditions.