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Semiconductor stocks have pulled back this year, hurting top exchange-traded funds that have long provided growth and stability. This crash is attributed to the ongoing trade war between the US and China, and the lingering fear that the artificial intelligence (AI) bubble may have bursted.
Top chip stocks have plunged
NVIDIA, the biggest semiconductor stock, has dived to $110 from the highest point this year. This decline happened after its financial results showed that its business was growing moderately. Its numbers showed that revenues jumped by 78% to $39.3 billion, leading to an annual figure of $130 billion.
The company’s guidance is that its quarterly sales will be $43 billion and that its gross margins will be between 70.6% and 71%. While this is still strong revenue growth, analysts anticipate that the trend will continue slowing. The average estimate is that the annual revenue will be $204 billion, a 56% annual growth, followed by $251 billion next year.
Other top semiconductor stocks have also plunged. AMD, a top player in the CPU and GPU industries, has plunged by over 47% from its 2024 highs. Broadcom, which crossed the important $1 trillion market cap in 2024, has plummeted by 28% from its highest point this year.
Intel, a company that dominated the semiconductor industry, has now become a fallen angel, with its stock falling to $19.75. Other top chip stocks like Marvell Technology, On Semiconductor, Ambarella, Microchip, Texas Instruments, and Micron have all tumbled.
Read more: Nvidia stock receives a downgrade despite strong earnings
SOXX, SOXL, SMH, and FTXL ETFs have plunged
The ongoing performance of the semiconductor industry has had a negative impact on ETFs that track the top players. The closely-watched Nasdaq Semiconductor ETF (FTXL) has plunged by 20.7% this year. Its assets have also plunged, with their net outflows rising to over $168 million. It has shed assets in all months this year.
Similarly, the VanEck Semiconductor (SMH) ETF has had net outflows of over $1.06 billion, bringing its current assets to over $18.5 billion. The iShares Semiconductor ETF (SOXX) stock price has dived by over 20% this year, while its assets have had an outflow of over $1.19 billion.
The worst-affected in terms of performance is the Semiconductor Bull 3x ETF (SOXL), whose stock has plunged by over 62% this year. Yet, it has been a winner in terms of assets, as its inflows have risen by over $3.8 billion to $8.14 billion.
AI bubble concerns remain
There are two main reasons why semiconductor stocks and ETFs have crashed this year. First, there is a risk that the industry will become a victim for the ongoing trade war. As in the past, there is a likelihood that Donald Trump will place tariffs on imported goods from China and other countries.
As the trade war escalates, the US may decide to ban some of its chips from Chinese products. A good example of this is when Trump banned Qualcomm’s products on Huawei, crippling the company.
Second, there is a risk that the AI bubble is bursting, as the world deals with an oversupply of AI models. A good example of this is Microsoft, which is now halting data center projects globally. That is a sign that other companies will do the same, which will lead to a slow growth over time.
The challenge is that the industry does not have another major driver to offset the slow growth in the AI space. That’s because other industries in the sector like personal computing, gaming, and Bitcoin mining are no longer growing as they did in the past.
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