Oh Come On!
Investor, Venture Capital Background
Semiconductors could leg up hard on real profits and pull capital out of SaaS. Chip stocks are printing earnings without circular financing or off-balance-sheet shenanigans, and they have recently moved with a -1 correlation to SaaS. With volume this heavy, lifting the chip ETFs 2% takes a lot of actual dollars, funded from SaaS, which has less liquidity to absorb the selling; if past is prologue, a semiconductor rally would crush SaaS. x.comÂ
Semiconductors offer a near-certain one-year payoff at lower valuations, and they will print cash and buy back gigantic amounts of stock, raising their fundamental floor. Unlike 2022's overvalued one-time COVID winners, chipmakers are growing faster than hyperscalers' cloud revenue and dropping it straight to the bottom line, versus a 5-7 year capex bet with a wide range of returns. Per @JulianKlymochko, Micron's consensus EPS rose 45% in a month while the stock fell 16% to 5x earnings. x.com x.comÂ
Semiconductors could capture scarce spot compute's value if its forward curve holds. Compute trades in deep contango, while chip stocks price in little of that value; near-term moves are unpredictable. That makes the sector very bullish. The earlier lab-funding risk looks less acute: Anthropic should hold nearly $200B cash after its IPO and is operating-cash-flow profitable. Even with 2029 capex cuts, chips look cheap if future buyers do not default. x.com x.com x.com x.com x.comÂ
Semiconductors look attractive because SMH's largest volume since July is appearing as it defends last month's and last week's lows. This area is the concentrated spot for the ETF's largest institutional investment ever. x.comÂ
Tech and semiconductor bounces are mainly driven by less urgent hedge-fund selling rather than fresh buying. Per Goldman Sachs, tech is still being sold amid very low activity; there is no sign risk has been added yet. The unwind may be nearing its end, especially as hyperscalers stick to capex plans and Q3 semiconductor earnings look likely to be positive. Less crowded positioning and more normal multiples leave a healthier base for a longer-term rebuild. x.comÂ
Semiconductor earnings have outpaced prices, making the selloff look more like forced positioning than a broken growth case. Since January 2025, the SOX rose about 114% while reconstructed forward earnings rose about 198%; the estimate is approximate. Hedge funds sold global tech at a greater-than-three-standard-deviation pace in October 5-16, a pattern seen near earlier lows, though another sharp flush could come before a reversal. x.comÂ
Semiconductors look relatively cheap against the S&P 500, while their earnings are growing much faster, barring an EPS reset. The selloff looks overdone, though that does not mean it reverses tomorrow. x.comÂ
Semiconductors' parabolic run is likely to end in a bear market, and record ETF inflows may be a contrarian warning. The sector's forward P/E was 12.8 at its 2022 low and 11.5 at its 2018 low, versus the 16.4 cited now in the quoted post. Past parabolic runs saw 43%-55% drawdowns; the previous record inflow came at a top. x.com x.com x.comÂ
Money should rotate from software back into semiconductors as software multiples get frothier, a contrarian call against the current narrative that SaaS has an AI tailwind. x.comÂ
Semiconductor fundamentals have improved as SpaceX and Meta say spending will rise further, while rates have come down. Earlier caution rested on fears that megacaps could not sustain spending and rising rates would slow AI investment; neither worry has played out. Today's selling feels more like stops being hit and investors giving up. x.com x.comÂ
Semiconductors face more unwind risk because Korea's speculative trading is only the tip of the iceberg. There is probably even more high-volume leveraged trading in the US, through leveraged ETFs, margin and options, and no one knows when that will blow up in chips. @anandragn describes the AI trade unwind as 4-5 weeks of total destruction. x.comÂ
Some semiconductor stocks have returned to reasonable valuations as fundamentals improve, making recent declines buying opportunities. Many had traded at two to three times their median valuations; the correction brought some back toward normal, while sustained AI spending should benefit suppliers for years. x.comÂ
