Stanphyl Capital
Managing Member & Portfolio Manager at Stanphyl Capital, Value Investor
Semiconductors remain a cyclical business, so projecting major chip price increases every quarter for years is a bet worth taking the other side of. AMD at $408 trades around 90x its annualized Q2 GAAP earnings guidance, which is insane for a huge, cyclical chip company, and that guidance presumably already includes major price increases. Commentators calling chips no longer cyclical may not have invested long enough to see a cycle. x.com 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
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 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
The semiconductor trade looks fragile because it now hinges on AI labs' growth. Semis sold off when Anthropic's month-over-month ARR growth decelerated, putting the market's fragility on full display, and that may be a sign of things to come. x.comÂ
Semiconductors have likely already put in a major top, with their first bounce extremely weak. Semis are working back into big-volume selling with weak upside volume, and many stocks aren't joining the hardware rally as they should. Everyone on X still wants these stocks despite poor price action and volume, which is classic market-topping behavior. 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
Semiconductors still look likely to lag on a risk-adjusted basis, even if Treasury intervention such as yield-curve control changes the broader picture. They should have been rallying hard this week and are not acting right for bulls, suggesting something is brewing, probably a capex disappointment. Hyperscalers may be closer to another leg up. x.com x.com x.comÂ
Semiconductors lack the buying firepower for another run now that Leo's giant leveraged, concentrated bets and the funds copying him are gone, and about 3.5% of Korea's population is being margin called. Traders took profits on yesterday's bounce at the open, so the market should be more balanced and less speculative from here. Macro pressure from oil and rates should also push stocks lower into year-end. 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 look quite overheated over a five-year horizon and are a high share of the S&P 500, while energy and defense are underweighted. Energy and defense, especially counter-drone, offer more potential over five years. @OutspokenGeek cautions that oil could fall after a 20% energy run on the Hormuz crisis. x.com x.comÂ