Semiconductor stocks and the related exchange traded funds sold off Thursday after Taiwan Semiconductor (NYSE: TSM) issued a bearish forecast, including a warning on smartphone demand.
“TSMC, the world’s largest contract chipmaker and a major Apple supplier, revised its full-year revenue target to the low end of its earlier forecast,” according to Reuters. “TSMC, also a supplier to Qualcomm and Nvidia Corp, said it expects growth this year of 5 percent for the global semiconductor industry, weaker than an earlier forecast of 5-7 percent.”
The news from Taiwan Semiconductor weighed on chip ETFs, including the VanEck Vectors Semiconductor ETF (NYSEArca: SMH), of which Taiwan Semiconductor is one of the largest holdings. In fact, SMH was eyeing its worst one-day performance since November as it clings to the $100 area.
“That perch above the $100 level is notable in its own right, but this region, home to the 160-day moving average, has been especially supportive in recent weeks. It also sits right above SMH’s year-to-date breakeven point. And with the exchange-traded fund (ETF) again testing these critical technical levels, options are trading at a rapid pace,” reports Schaeffer’s Investment Research.
Semiconductor ETF Risks
There are some risks to consider with semiconductor stocks and ETFs. For example, President Donald Trump has pushed for restrictions on trade barriers with China, which might pose a threat to the sector. China is a key market for the global semiconductor industry, consuming more than $100 billion worth of semiconductors or roughly one-third of the world population.