The Semis Are Courrecting

After a massive run to the upside, the semis are finally undergoing a well deserved rest. I did warn you about this last week. Many of you chose not to heed my dire warnings and now sit there RACKED with losses.

To put this in context, the $SMH is down 7% in the past 3 session with the $SPY barely changed and the NASDAQ down less than 2%. This points to a very specific and disagreeable cadence in the share prices of $NVDA, $AVGO and other leaders.

So is it over?

One can never know for sure. I will argue in favor of the semis based on the growth prospects. However, they are still incredibly rich in value. Let’s review.

Here are the top 5 semis by market cap and their price to sales ratios and their 3 year avg price to sales ratios:

$NVDA 37x, 28x
$TSM 11.5x, 9.1x
$AVGO 17.6x, 13x
$ASML 14x, 12.7x
$AMD 11.4x, 9.6x

Consider that we are comparing today’s price to sales ratios following a 7% correction against ratios during the bull markets of 2022 and 2023. The valuations have continued to elevated, as money flow concentrated in the sector due to the proliferation of AI. This isn’t going to be a screed about semis; because good companies with strong growth will always be in high demand and you will always miss out on big winners if you avoid them due to valuations.

Nevertheless, it is worth noting the correction in the semis will soon become a topic of discussion. My guess if we trade down another 2% tomorrow, folks will start losing their fucking minds over it.

Presently I have just two positions: $SOXS and $TMF, short semis and long treasuries: +42bps for the session.