The stock market has reached unprecedented heights, primarily driven by the semiconductor sector. In a recent client note, Bespoke Investment Group characterised the current surge in semiconductor stocks as “one of the most epic runs in history.”
As of the close on Tuesday, notable companies within this sector such as Seagate (STX), Micron (MU), and Intel (INTC) have all seen their stock prices rise by over 25% within just a week. Advanced Micro Devices (AMD) initially increased by a more modest 9.9% before skyrocketing more than 18% following its latest earnings report.
Before the launch of ChatGPT in November 2022, semiconductor stocks in the Philadelphia Semiconductor Index (^SOX) constituted approximately 6% of the S&P 500’s market capitalisation. Today, that representation has ascended to around 22%. This dramatic rise underscores the significant influence semiconductors have on the market.
Turning to the iShares Semiconductor ETF (SOXX), the least-performing stock year-to-date is Nvidia, with an approximate gain of 8%. Broadcom follows with a 24% increase. Meanwhile, Micron, Intel, and Marvell have all seen their stock values double, each registering over 100% growth this year.
As an aggregate, the Philly Semiconductor Index has surged to 56% above its 200-day moving average. For those unacquainted with trading terms, the 200-day moving average is essentially the average price of a stock over the last 200 trading days, providing a long-term trend indicator. A stock trading significantly above this level, like the semiconductors currently, suggests potential overheating.
Historically, the index has only been this elevated above its 200-day moving average twice before—first in July 1995 during the nascent stages of the Dot Com bubble, and again in March 2000, which coincided with the market’s apex. Bespoke warned that such extreme performance cannot be sustained indefinitely and advised investors to moderate their expectations for the semiconductor sector over the next year.
Given the sector’s crucial role in determining the broader market’s trajectory, those investing in the continued rise of semiconductors may need additional strategies to navigate the market’s fluctuations. Interestingly, the current AI-driven momentum in the market has seen multiple leadership shifts, with stocks from various sectors such as the Magnificent Seven, memory companies, and to a lesser extent, energy and financials, contributing to this ongoing bullish phase. This suggests that the current rally in semiconductor stocks may not be simply a fleeting moment, but part of a larger, evolving narrative in the market.
