Amid a rotation into value and small-cap equities, semiconductor stocks and related ETFs are dealing with some selling pressure in the early stages of the third quarter. Some of the well-known semiconductor indexes are sporting month-to-date losses in excess of 5%. And some previously high-flying chip stocks have retreated much more than that since the start of the third quarter.
For example, Advanced Micro Devices (AMD) entered Friday with a loss of 14.38% over the prior week. Ominous as those data points appear, there’s still a compelling case for chip stocks. And that could imply the current dip is a buying opportunity for assets such as the VanEck Semiconductor ETF (SMH ).
Even with July weakness, SMH is higher by 45.4% year-to-date as of July 17. Much of the ETF’s bullishness is attributable to Nvidia (NVDA). The star stock of the semiconductor group accounts for 19.55% of the SMH portfolio. But the good news is that some analysts believe momentum for chipmakers with artificial intelligence ties will expand in the second half of 2024.
AI Breadth Could Propel SMH Rebound
While Nvidia remains the marquee chip name as it pertains to AI, analysts at TD Cowen see that conversation broadening in the months ahead. And that could be to the benefit of investors holding SMH.
“NVIDIA continues to dominate trading, narrative, and fundamentals, though GenAI spending is beginning to expand to others such as AMD, Broadcom (AVGO) and Marvell (NASDAQ) (a dynamic that will accelerate in C2H24),” according to the research firm.
Broadcom and AMD are SMH’s third- and fourth-largest holdings, respectively, combining for almost 12% of the ETF’s roster. Marvell commands a weight of 1.67% in the fund.
The TD Cowen analysts added there is no sign of retreating AI chip demand over the near term. That thesis is fortified by the fact that California-based Broadcom recently upped its 2024 AI demand targets. TD Cowen views Broadcom as “exceptionally well-positioned to benefit from the ongoing transition to Ethernet back-end networking in addition to custom silicon ramping.”
“Additionally, major software companies are still rolling out AI-based products, so it’s likely that demand will continue to strengthen as the big spenders try to achieve the convergence of general artificial intelligence,” acco"rding to Seeking Alpha.":https://seekingalpha.com/news/4124303-amd-broadcom-marvell-likely-to-see-increased-ai-benefit-in-second-half-td-cowen
TD Cowen is also constructive on Qualcomm (QCOM) and Monolithic Power Systems (MPWR), both of which are SMH member firms.
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