Chip stocks started September with their worst gains in more than four years as shares of artificial intelligence hotshot Nvidia lost steam 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 March 2020, when it fell 15.2% due to the coronavirus lockdown. The sharp decline is just the latest twist in a tumultuous summer for the semiconductor industry. SMH has gained more than 5% on seven different trading days over the past two months, according to FactSet data. On Friday, the stock closed more than 24% below its July 10 all-time high. The SMH 3M mountain semiconductor ETF just had its worst week of 2020. Its major holdings include Nvidia and TSMC. To be sure, the semiconductor industry is no stranger to wild swings. The industry has historically been cyclical, closely tied to the ups and downs of the economy, and now it's coupled with the excitement of artificial intelligence. Analysts Still on Call However, despite the recent turmoil, Wall Street analysts are not giving up these days. “For a few weeks, the SOX index fell 25% and then recovered 20%, all in the span of 6 weeks (what a long, strange journey it has been). Our call is – in the current situation Keep the truck going on a mid-cycle correction and remain overweight Cantor Fitzgerald analyst CJ Muse wrote in a Sept. 3 note, confirming in an email to CNBC on Friday that despite the poor performance of chip stocks this week. But he maintained that view despite the struggles of some chipmakers — such as Intel, which announced layoffs in August — that much of the sell-off appears to have nothing to do with business fundamentals, despite Broadcom's earnings report the day before. It beat analysts' profit and revenue expectations, but the company's stock price still plunged 10.4% on Friday, Bernstein analyst Stacy Rasgon said in a note to clients on Friday. Although Broadcom's third-quarter revenue guidance was slightly lower than expected, as the stock sell-off suggested, there is no reason to panic. “Behind the scenes, though, things are still brewing,” Rasgon wrote. “The non-AI semi-finished product business at least appears to have bottomed out (some is starting to grow again), and the company’s orders have grown over 20% over the past few quarters; given their lead times, this suggests that over the next 2-4 years The outlook for resurgent AI remains very good to us, with clear evidence of strong demand and a “strong” outlook for next year. AVGO 5D shares fell more than 10% after reporting quarterly results on Friday, of course, even with companies like SMH. The 26-stock broad-sector fund is in trouble, and some chip stocks are also likely to rebound. VanEck last month launched a smaller version of the fund, the VanEck Fabless Semiconductor ETF (SMHX), which includes 22 stocks. The fund focuses on companies that design chips but are not major manufacturers themselves. Nick Frasse, associate product manager at VanEck, said the idea for the new fund came from research on Nvidia, which together with Broadcom account for one-third of the new fund's portfolio. The VanEck team believes that Nvidia's asset-light business model is key to its success, and the new ETF aims to capture companies with similar structures that theoretically have the flexibility to focus more on innovation. “When we look at the long-term opportunity set, fabless appears to be the long-term winner in artificial intelligence,” Frasse said. However, this summer's sell-off is hitting all types of semiconductors. SMHX also fell more than 12% last week. Looking ahead, investors are likely to get the latest news from multiple chipmakers at Goldman Sachs' Communacopia+ technology conference next week. Executives from many of the largest semiconductor companies are scheduled to speak at the conference, including the CEOs of Nvidia and Advanced Micro Devices. —Reporting by CNBC’s Gina Francolla
A semiconductor ETF had its worst week since 2020. Here’s what’s next
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