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 up an average of 20.5% year-to-date.
Those performances by the big-name semiconductor ETFs top not only the broader market, but the Nasdaq Composite and diversified technology exchange traded funds as well.
“When I think of the semiconductors space, I kind of visualize that five years ago they basically threw a bunch of the spaghetti at the wall to see what would stick. And we’re currently in an environment where a lot of things have stuck,” Stacey Gilbert, head of derivative strategy at Susquehanna, said in an interview with CNBC.
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.
“It’s thanks to the recent advances in artificial intelligence, autonomous driving and data centers that semiconductor stocks have enjoyed such a rally, Gilbert said,” according to CNBC.
Investors are displaying enthusiasm for semiconductor ETFs this year. On a year-to-date basis, SOXX has seen inflows of $140.3 while SMH has hauled in more than $356 million in new assets.
“While we continue to expect quarter-to-quarter variance in capital spending owing to a more concentrated semiconductor manufacturing customer base, when observing spending patterns over years, data suggests since coming out of the 2008/2009 downturn, capital spending has been more stable than any other time over the past 30 years,” according to a JPMorgan report on semiconductor stocks published last month.
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.
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