I’m beating the “latent semi selloff” drum pretty hard.
I promise I’m not short. Seriously. That has nothing to do with it.
The truth is, it’s “high summer,” or getting there anyway, and that’s when you gotta take what the zeitgeist is giving you from an editorial perspective.
Although we’re apparently not “there yet” in terms of an actual tipping point beyond which this supposedly imminent correction for chip stocks “realizes” in a meaningful way, the situation does feel dicey. No hyperbole needed. The run-up counts among the most pronounced sector rallies in living memory, both in terms of scope and rapidity.
I’ve been on (and on) about the main fundamental case for a semi correction — namely that the mirror image of the coming slowdown in the rate of growth for hyper-scaler capex will be a “rolling over” moment for semi forward profits and revisions breadth.
If you like a simpler rationale, Morgan Stanley’s Mike Wilson has one. It’s illustrated below.
As you can see, if you lag the SOX by four months and calibrate the scales “correctly” on a double-y-axis, you get a near tick-for-tick match with silver stocks.
“The comparison,” Wilson explained, “is twofold.” Most obviously, both semis and silver enjoyed exponential rallies. But there’s another connection. Both are “based on the commodity market, which tends to exhibit wide swings in price over time,” Wilson said.
Going by the silver analog, the nascent correction in semis likely has further to go, he went on, emphasizing that any selloff will probably be “led by the memory subsector,” which is “typically the most commodity-like of the semiconductor complex.”
I was hoping to not sell till August when MU becomes long-term capital gains for me. But I reluctantly sold half today and I think I have some other selling to do. Since the pandemic, Momentum is huge.
Poetic One – you booked half so the pressure’s off, no? (Nicely done on the position, by the way.)
Now your issue is whether MU stock will fall further than the tax percentage you would gain from holding on. (Capital gains rate vs your income tax bracket.)
Biggest fish I ever booked.
Thanks for your coverage and thoughts on the sector.
The comparison with silver is more of a chart thing and a fine example of the madness of crowds. But the thought that memory chips are like many other commodities is spot on. And like some commodities like copper, tin or palm oil, there’s no way to immediately quickly raise production to meet a sudden surge in demand. CEOs earn their salaries on getting right whether that demand is a short-term blessing or a longer-term source of new demand that merits huge capital expenditures to meet.
Let’s see how the semi cool off plays out. A lot of semi are in correction territory, rate is definitely a factor.
The demand side is still strong as it can be, even with the capex slowly, it will take years to build up the fab and meet capacity demanded today. Micron and others have signed many LTAs, customers sign those for a reason.
If they cannot increase output, it’s a matter of how much they can increase prices. Or how quickly input subsititution kicks in. As in the roll out of more efficient LLMs which reduce demand for computng capacity.
we are doing semis vs silver, no wonder Mike got demoted
H200s back on in China