Tech sector struggles with 4-6% drop in semiconductor stocks, potential downside for Nvidia

From Investing.com: 2024-07-13 04:01:02

Thursday saw the tech sector, especially semiconductors, struggle as the SOX dropped 350 basis points, causing popular stocks to fall 4-6% with no notable triggers. Mizuho analysts noted a rotation into rate-sensitive winners following the lower CPI report, speculating a possible rate cut in September.

The market experienced a shift towards housing, biotech, utilities, and REIT stocks as fund managers hesitated to sell Big Cap Tech and Semiconductor Winners. Mizuho analysts are looking towards the upcoming PPI data release for further market impacts.

Analysts view the Thursday sell-off as a warning sign to start taking profits in major tech and semiconductor AI winners. The rapid rotation out of Software and into Semis this week raised concerns about valuations ahead of earnings season in July.

The sell-off and rotation out of semiconductors could foreshadow future trends when Nvidia guides ‘inline’ or misses expectations. Mizuho analysts anticipate a broad sell-off in semis when NVIDIA eventually experiences a downturn.

Semiconductor equipment stocks like Applied Materials, KLA Corp, and Lam Research dropped significantly, indicating the potential for a broader semiconductor market unwind as these stocks get sold off rapidly by momentum strategies and funds.

Analysts speculate that the AI semiconductor unwind might occur when cloud hyperscalers discuss moderating their capex growth. While they do not foresee this until CY25, they caution that concerns about short-term peaks in 2025 or 2026 could prompt many investors to sell pre-emptively.



Read more at Investing.com: Will the selloff in Nvidia, chip stocks extend? By Investing.com