Are Semiconductors Overvalued? Start With the ETFs

Semiconductors have been a huge player in the U.S. stock market in recent years. Even before generative AI’s big debut, semiconductor firms were helping portfolios of all kinds.

Of course, with AI potentially in a bubble and so much investment coming to the space, investors may be asking: Are semiconductors overvalued?

Semiconductors Overvalued? Check Their ETFs

It’s a fair question, and an appropriate one for investors — are semiconductor firms coming in too hot? While many resources exist to assess each individual firm, assessing semiconductor ETFs could help. A long-term technical analysis could provide a different view than simply looking at price-to-earnings, for example.

Consider, for example, the iShares Semiconductor ETF (SOXX). A standout among semiconductor ETFs, the strategy’s price is at its highest in the last five years. However, according to its Relative Strength Index (RSI) on YCharts, it has only really risen into true “overbought” territory five times in five years.


SOXX’s tech chart as of May 14, 2024

That’s just one strategy, however. The VanEck Semiconductor ETF (SMH) has breached a 70 RSI read a similar number of times, but the Invesco Semiconductors ETF (PSI) has only meaningfully done so twice in the same time frame. All three ETFS, per their tech charts, have seen long-term price momentum with a higher 50-day simple moving average (SMA) than 200-day SMA for the entire time period, too.


SMH’s tech chart as of May 14, 2024


PSI’s tech chart

That suggests a steady rise without significant volatility. So, what about the ETFs’ price-to-earnings (P/E) ratios? An ETF’s P/E ratio means something different than a firm’s. Given that semiconductor ETFs include multiple firms firms, they could help indicate whether semiconductors are overvalued. SMH, PSI, and SOXX all have lower forecasted P/E ratios than the S&P 500 Information Tech Sector’s current 32.37 P/E ratio.

ETFs don’t offer perfect information about a space, but their transparency and traceability can offer helpful data points. For those looking at semiconductor ETFs, PSI, SOXX, and SMH may all appeal.

For more news, information, and analysis, visit Vettafi | ETF Trends.