Semiconductor stocks and exchange-traded funds (ETFs) have been on a winning streak throughout 2023, with Nvidia (NASDAQ:NVDA) leading the way with an impressive 221% year-to-date gain. Popular chip ETFs, such as the VanEck Semiconductor ETF (SMH) and the iShares Semiconductor ETF (SOXX), have also outperformed the Nasdaq QQQ Invesco ETF (QQQ) by a significant margin.
The surge in semiconductor stocks can be attributed to two primary factors: the boom in Artificial Intelligence (AI) and ongoing supply chain disruptions. The AI industry’s rapid adoption has been a major driver, benefitting companies like NVDA, which specializes in graphical processing units (GPUs) well-suited for AI computing. Nvidia’s recent achievement of a $1 trillion market cap reflects investor optimism in its strong position within the AI market.
The AI industry shows no signs of slowing down, with predictions of significant productivity value and substantial growth in the AI chip market. However, not all semiconductor stocks are enjoying the same success, as some companies face challenges, like Taiwan Semiconductor (TSM), which manufactures AI chips for Nvidia but lags behind the broader market.
TSM’s recent $2.9 billion investment in an advanced chip packaging plant indicates efforts to meet the surging global demand for AI chips. However, this move could potentially contribute to an oversupply situation, shifting the dynamics of the market. The easing of supply chain bottlenecks, which previously supported semiconductor stock prices during the chip shortage, might now become a headwind for the sector.
While the market for AI chips is poised for growth, the gradual easing of supply chain issues and the potential oversupply could put pressure on the prices of outperforming semiconductor stocks like NVDA and associated ETFs. Additionally, any weakness in the global economic outlook could further impact these high-flying chip names.
Considering these factors, it might be prudent for investors to consider booking partial profits on their standout semiconductor stocks to secure some gains while maintaining exposure for long-term growth. Keeping a close eye on developments in the AI industry and supply chain dynamics will be crucial for making informed investment decisions in this rapidly evolving sector.
Featured Image: Freepik @ svstudioart
Author Faith Yakubu 
