The iShares Semiconductor ETF (SOXX) and the VanEck Semiconductor ETF (SMH) suffered a harsh reversal this week as top companies in the index shed over $500 billion in value following key earnings.
SMH dropped to $352, down from the all-time high of $372, while SOXX fell to $296 from a high of $313. This article explores why these semiconductor ETFs are falling and whether they will rebound soon.
SOXX and SMH ETFs dropped amid warnings of an AI bubble
The main reason why the SOXX and SMH ETFs crashed is that there are lingering concerns about an AI bubble in the United States and other countries.
Michael Burry, a top investor known for predicting the housing crisis in 2009 has gone against the grain and shorted high-flying companies like Palantir Technologies and Nvidia.
He cited their significantly high valuations and the ongoing irrational exuberance. Still, while Burry is generally a respected figure in the investment industry, some of his recent calls have not worked out well.
The main concern of the AI bubble is that companies are investing billions of dolllars and it is unclear how they will recoup their investments.
One of the top concerns is OpenAI, the biggest player in the industry. OpenAI has inked deals with most companies in the chip industry. This week, it inked a $38 billion deal with Amazon.
It has entered a $100 billion deal with AMD, and others by companies like Microsoft, Broadcom, and CoreWeave. In total, its deal-making is now estimated to be worth over $1.4 trillion.
In a statement this week, Sam Altman revealed that the company’s revenue will be over $13 billion this year, making it the biggest player in the sector.
Analysts are concerned about monetization in the industry, with a Bain report estimating a $800 billion revenue shortfall by 2030.
Palantir, AMD, and Qualcomm earnings
The SOXX and SMH ETFs have pulled back this week after the latest results by Palantir and AMD. Palantir, a top player in the AI industry published strong results and boosted its forward guidance.
Nonetheless, the stock plunged by 10% as the guidance was lower than what analysts were expecting. Still, its results demonstrated that its business was still growing and attracting more commercial clients.
AMD, another top player in the SOXX and SMH ETFs, also plunged by over 4% in the extended hours. This retreat, which we predicted here, came as the company’s revenue jumped by 36% to $9.2 billion and its net income rose by 61%.
The next key catalyst for these semiconductor ETFs is the upcoming Qualcomm earnings. This will be a closely-watched report as it comes after it unveiled its AI chip to rival Nvidia.
Will these semiconductor ETFs rebound?
Concerns that we are in an AI bubble have been going on in the past few months. Also, there are concerns about the valuations of these funds. SOXX has a PE ratio of 36.6, while the SMH ETF has a multiple of 40. These numbers are much higher than the S&P 500’s 23.
Therefore, it is normal to predict that a correction will happen at some point when these companies stop growing. This correction will likely happen in 2026 when big customers like Microsoft and Meta Platforms will slow their investments.
In the near term, however, this spending will continue, which will push these ETFs higher. A key catalyst for their performance will be the upcoming Nvidia earning on November 19. Hints that its business is slowing will have a negative impact on the ETFs.
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