Semiconductor stocks started September with their weakest start in more than four years as shares of artificial intelligence (AI) favorite Nvidia lost momentum and worries about U.S. economic growth weighed on the market. The VanEck Semiconductor ETF (SMH) fell 11.7% in the Labor Day-shortened four-day trading week. It was the worst week since a 15.2% drop in March 2020, when COVID-19 lockdowns spurred. The sharp drop is just the latest development in what has been a volatile summer for semiconductors. Over the past two months, SMH has fluctuated by more than 5% over the seven trading days, according to FactSet. On Friday, it closed more than 24% below its all-time high on July 10. SMH 3M Mountain This semiconductor ETF had its worst week since 2020. SMH has more than $20 billion in assets and is one of the most actively traded funds on the market. The firm’s major holdings include Nvidia and Taiwan Semiconductor Manufacturing Co. (TSMC). To be sure, the semiconductor industry is used to big swings. The industry has historically been cyclical and tied to economic ups and downs, but now the excitement around AI has been added. Analysts are on the sidelines, but Wall Street analysts aren’t planning on staying put despite the recent turmoil. “We saw the SOX fall 25% and then recover 20% in the space of six weeks (what a long, strange journey it’s been). Our view is to continue moving forward and maintain an overweight position in semiconductors amid the current mid-cycle correction,” Cantor Fitzgerald analyst CJ Muse wrote in a Sept. 3 note. Muse confirmed in an email to CNBC on Friday that he was sticking with this view despite a tough week for semiconductor stocks. Some chipmakers have struggled, such as Intel, which announced job cuts in August, but many of the offerings appear unrelated to the fundamentals of the business. For example, Broadcom shares fell 10.4% on Friday, even though the company beat analysts’ profit and revenue expectations in its earnings report the day before. Broadcom’s third-quarter revenue outlook came in slightly below expectations, but as the stock’s sharp decline suggests, there’s no reason to be alarmed, Bernstein analyst Stacey Rasgon wrote in a client note on Friday. “Things are still simmering under the lid, though,” Rasgon wrote. “The non-AI semiconductor business appears to have at least bottomed (some are starting to grow again) and the company has seen orders grow 20%+ over the past few quarters. Given lead times, we expect a recovery over the next 2-4 quarters and a better situation next year. The AI story remains very good, with clear evidence of high demand and ‘strong’ growth next year.” AVGO 5D Mountain Broadcom fell more than 10% on Friday after reporting quarterly earnings. Of course, some chip stocks can rebound even when broad sector funds like the 26-stock SMH are struggling. VanEck itself launched a somewhat more limited version of the fund last month, the VanEck Fabless Semiconductor ETF (SMHX) (22 stocks). This “fabless” fund focuses on companies that design chips but are not major manufacturers. Nick Frasse, an associate product manager at VanEck, said the idea for the new fund came from research on Nvidia, which, along with Broadcom, makes up a third of the new fund’s portfolio. The VanEck team determined that Nvidia’s asset-light business model was key to its success, and the new ETF is designed to capture similarly structured companies that, in theory, have the flexibility to focus more on innovation. “Just looking at the long-term opportunity set, it seemed to us that the long-term winners in the AI space were going to be fabless companies,” Frasse said. But the summer selloff has hit all kinds of semiconductors. SMHX also fell more than 12% last week. Moving forward, investors will get updates from multiple chipmakers at the Goldman Sachs Communacopia+ Technology conference next week. The conference is set to feature a host of executives from major semiconductor companies, including the CEOs of Nvidia and Advanced Micro Devices. — Reporting by Gina Francola for CNBC
Semiconductor ETFs Have Their Worst Week Since 2020. What’s Next?
By NvidiaDaily
