I keep saying semiconductor stocks are a lynchpin for this market. And sure enough, the bulls took a hit when a Chinese company dropped big news over the weekend...and chip and AI stocks got crunched in response.
Take a gander at the MoneyShow Chart of the Day, which shows the performance of key domestic and foreign chip and AI stocks. In just five days, they lost anywhere from 4.6% to 12.5%.
The rout got underway after a Chinese company called ChangXin Memory Technologies (CXMT) reported “key progress” on memory cell architecture research. Without getting too deep in the weeds, it could result in cheap, Chinese competition for memory chip companies. Shares of South Korean chip giant SK Hynix Inc. (SKHY) tanked, while Micron Technology Inc. (MU) took on water.
Of course, the bigger issue is that investors are ALL IN on technology stocks and AI-related trades. Take the most recent Bank of America Global Fund Manager Survey. It found that 37% of the 161 respondents – who collectively control $453 billion in assets – are overweight the technology sector. That’s the highest since August 2020.
What’s the single-most crowded trade in the world by the way? “Long global semiconductors!” So, naturally we saw spillover selling in a wide swath of tech names once chips crumbled. That included SpaceX (SPCX), off 7.5%, and Nvidia Corp. (NVDA) and Broadcom Inc. (AVGO), both down 4.6%.
I’m not going to sit here and tell you the tech bull market is over. But I AM going to keep highlighting the activity in the sector.
The chip stocks couldn’t hit a new high along with the market. They couldn’t hold their recent short-term breakout. And now, they’re getting smacked again. That’s not great pin action – and you shouldn’t ignore it.