The semiconductor trade has been volatile recently. Through the end of June and into July, the VanEck Semiconductor ETF (SMH) declined more than 17%. We do not view this as the end of the AI trade. Rather, it appears to be a classic case of prices returning to more normal levels after an extended advance.
Technical analysis helps frame the move and identify key support and resistance. After remaining overbought for an extended period, selling pressure has taken hold and SMH is moving back toward its long-term mean (the midline of the rising channel). This mean-reversion process is visible in the indicators: RSI has retreated from overbought territory back into the mid-50s, and the MACD histogram has turned positive even as the lines themselves remain below zero—early evidence that downside momentum is fading. While these levels are not guaranteed to hold, they give a useful sense of where longer-term capital currently sees fair value and where opportunities may emerge on both the long and short side.
As noted in our previous commentary, some profit-taking is normal after several months of strong double-digit gains. A more recent investor complaint is that the AI trade has become too broad—too many names have been indiscriminately associated with this sector. Capital appears to now be rotating back toward proven leaders with established trend lines and proven staying power, notably Nvidia and Broadcom. Watching where investors are willing to step in during this profit-taking pullback will help identify which companies are likely to remain core holdings in the AI theme going forward.
This material is for informational purposes only and is not intended as investment, tax, or legal advice. Past performance is not indicative of future results.
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