David Marlin
Founder of Marlin Capital, Long/Short Equities
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
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
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
Semiconductors look vulnerable because retail poured a record amount into the sector just as the chart went vertical, and that crowd is never early. It never ends well for retail; @rikurandgroup expects it to end in a liquidation cascade. 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
Semiconductors are drawing dip buyers in a rotational market, as ETF flows show investors buying semis while selling the rally in software and warming to gold and bitcoin as the dollar's status comes into question. x.comÂ
At this stage of the AI cycle, the hyperscalers are better to own than semiconductors. The hyperscalers are the spenders, not the suppliers: if credit tightens and capex is cut, their free cash flow rises while chipmakers lose orders. Positioning also favors the hyperscalers, as long semiconductors is the most crowded trade in the latest BofA Global Fund Manager Survey, at 53%. x.comÂ
Semiconductors could gain from desks buying back exposure sold ahead of leveraged-product rebalancing if markets recover even mildly. The expected selling flow was about $16B, and a strong signal also favored leveraged semiconductor exposure through SOXL and Nebius. There is no clear read on whether the market has bottomed over a longer horizon. 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
Semiconductor hardware leaders are correcting in Q3 because of mechanical rebalancing, not a fundamental collapse. After H1 2026 gains such as Micron's 301% and Intel's 257%, index funds, target-date portfolios and risk-capped active managers must trim winners and buy laggards. With passive funds over 55% of US fund assets and the top 10 S&P 500 stocks about 35% of the index, even a 2-3% trim in a few giant chip names frees tens of billions to rotate into mid-cap, value and cyclical stocks. … Show more