When the Semi Trade Turns Explosive, the Next Move Is Often Volatility

The semiconductor trade is starting to get just a bit overheated once again as the cohort leads to a reinvigoration of sorts in the AI trade. With Cerebras (NASDAQ:CBRS) hitting the ground running on its debut day, questions linger as to whether the degree of euphoria is getting out of hand when it comes to the semis. Of course, the semiconductors seem to be the play for those who don’t want to test their luck in the application layer.

With software in a slump and uncertainty surrounding which firms are best poised to power AI monetization and which names are just mere “wrappers” that are too dependent on the large language model (LLM) underneath the hood, it certainly seems like the hardware is the way to play it. But with such large crowds around the same trade, at what point does the sure beneficiary become the risky play?

And when do the seemingly at-risk software names, which have now seen valuations “reset,” suddenly become the new relative value play? Like it or not, the semis have gotten riskier in the past year, while software has become markedly less risky.

As a group of stocks goes parabolic, the natural question to ask is when the peak will happen and how vicious the drawdown could be. Dr. Michael Burry’s cautious view of stocks that have gone parabolic seems more than worth heeding, in my humble opinion.

It’s not easy to “reject greed” if you’re sitting on huge semi gains

It’s easier said than done to “reject greed” and go for relative value, though. With the semi trade plunging just over 4% to cap off a great week for broad markets, the terrain could be about to stay rockier for a whole while longer, perhaps for much of the summer or even the rest of the year. After a 138% or so surge in a year, continued gains at such a cadence would make me that much more nervous.

While some patient dip-buyers might get their moment to shine as volatility becomes the new normal in the semis and perhaps the broad tech trade, I do think that those who choose to stay the course and defy the warnings should fasten their seatbelts and be ready to deal with more wild swings.

Whether that means selling after an X% drop or hanging in there with the intent of topping up, I do think the semi scene has all the makings of a trader’s playground in the coming weeks and months.

Though I am skeptical of the heated semi trade, I also don’t think investors should expect any sort of AI chip bubble brewing to end in a cratering of the tech trade or even the AI theme. In a prior piece, I highlighted the Mag Seven as still cheap and perhaps a better way to play the rise of AI, given their dominance at multiple layers of the AI stack (including chips).

Nvidia’s less heated than the rest

While semis could go from greed to fear in the coming months, I wouldn’t give up on a name like Nvidia (NASDAQ:NVDA | NVDA Price Prediction), which I highlighted as not as hot as the rest of the pack. The stock fell 4.4% on Friday, and if the downward momentum continues, perhaps those with non-buyer’s remorse for not picking up Nvidia when they had the chance when shares were stuck sideways for close to three quarters might have a shot to buy at below $190 again.

The stock is gaining as semis do, but shares are only up around 8.9% from their November 2025 highs. That’s not quite the euphoric parabolic gain we’ve witnessed in some of the hotter semi plays in the market.

Also, Nvidia remains appropriately valued given its unmatched earnings growth. With the H200 China sale news hype fading while investors get ready for earnings this week, perhaps it’s Nvidia that dictates the next move for the semis. My worry is that a blowout beat might not be enough.