Chip stocks got hit hard this week as geopolitical tensions flared up, energy prices rose and fears of a rate hike or higher-for-longer interest rates resurfaced. The PHLX Semiconductor index (SOX) is down 8% on the week, 17% on the month, and is on pace to snap a three-month winning streak. The Roundhill Memory ETF (DRAM ) is down 17% this week, and the VanEck Semiconductor ETF (SMH) has stepped back by 7%. The eyes of Wall Street are fixed on the horizon for signs of tapering demand and a pullback in capital expenditures – harbingers that the artificial intelligence investment boom is coming to an end – but analysts aren’t reporting anything like that from the crow’s nest so far. Some stress earnings growth for chipmakers and argue that the sector still has room to run to support the broader market. SMH 5D mountain SMH 5-day chart UBS on Friday forecast earnings expansion of 92% this year for the Philadelphia semiconductor index, and an additional 40% in 2027. “These forecasts underline why we remain constructive on semiconductors overall, and why the industry should continue to support the broader equity rally,” Ulrike Hoffmann-Burchardi, global head of equities at UBS wrote. For Hoffmann-Burchardi, it comes down to the mismatch between supply and demand for computing power. “Demand for compute continues to exceed available supply, while capacity constraints along the supply chain are unlikely to ease quickly,” she wrote. Barclays’ trading desk also said Friday that they’re seeing “no signs of panic” in the semiconductor trade, though they are observing increased interest from investors on when exactly a rebound in the sector is expected to materialize. “Starting to get a lot more investor inbounds on when we could see a bounce in the semis market,” Barclays traders wrote. “The selling [is] more passive and not aggressive and it seems more like trimming of positions rather than investors trying to leave the space.” In June, the global semiconductor market was projected to grow by 90% in 2026 and a further 27% in 2027, according to the World Semiconductor Trade Statistics (WSTS), a trade group. More recent stats show this trend continuing. After a 106% annual increase in industry sales in April, sales growth accelerated to 119% in May, JPMorgan noted on Friday, summarizing WSTS data. Others, however, are sounding more pessimistic in their tone and stressing defensive positioning. Strategist Maximilian Uleer at Deutsche Bank expressed similar consternation about the sector on Friday. “The uncertain outlook in combination with the sector’s recent significant contribution to equity market performance raises the question of how to deal with semi stocks in a portfolio context,” he wrote. Ohsung Kwon at Wells Fargo noted on Thursday that “semi sentiment saw one of the sharpest 4-week declines in history.”
The semiconductor trade tumbled this week. Why UBS and Barclays are still bullish
