Semiconductor stocks and the VanEck Vectors Semiconductor ETF (NYSEArca: SMH) have been among the leaders of the technology sector’s surge and some market observers believe that trend can continue. SMH and the iShares PHLX Semiconductor ETF (NasdaqGM: SOXX) are both up more than 6% year-to-date.
Semiconductor ETFs have recently been durable performers as semiconductor stocks are rebounding to steady the broader technology sector, but that does not mean the gains are over for this suddenly hot group. However, valuations are rising for chip stocks.
“While price increases for both DRAM and NAND flash memory are raising the outlook for the overall semiconductor market, it will also put pressure on margins for system vendors of smartphones, PCs and servers,” said Jon Erensen, research director at Gartner. “Component shortages, a rising bill of materials, and the prospect of having to counter by raising average selling prices (ASPs) will create a volatile market in 2017 and 2018,” according to a statement from industry research group Gartner.
Still, investors could be paying up for future catalysts for semiconductor and broader technology names. If there is a silver lining for the rising valuations on chip stocks it is that some industry observers believe the group’s valuations should not be measured in the traditional sense because of the evolution of the semiconductor business.