It’s been brutal to be a semiconductor investor lately, with the iShares Semiconductor ETF (NASDAQ:SOXX) tanking 11% in the past week and around 16% from all-time highs seen at the end of June. At this pace, it feels like a bear market is unavoidable, but before you hit the panic button, I’d argue that the latest correction is nothing all too out of the ordinary, especially when you consider the magnitude of the year-to-date run.
Despite the latest sell-off, the iShares Semiconductor ETF is still up over 75%. And while Dr. Michael Burry is looking very wise with his latest short positions against the group as well as individual bearish bets against Nvidia (NASDAQ:NVDA | NVDA Price Prediction), I certainly wouldn’t want to single out Nvidia, especially as the GPU titan becomes one of the value plays of the batch. As to whether it will be (mostly) immune to the pain to come for the semiconductors remains the big question.
In my view, Nvidia didn’t really participate in the year-to-date boom, so it might not need to face as vicious a correction. With the shares holding their own on a turbulent Tuesday, gaining a fraction of a percent, perhaps Nvidia is the relative safety play as some of the hotter semiconductor names (think DRAM and NAND makers) come crashing back to Earth.
With Nvidia stock up just 4% on the year, Jensen Huang’s empire is now trailing the market by quite a bit. But it’s this period of underperformance that I think makes the shares tempting to growth investors looking for relative value in an industry where some may think there’s no value to be had. So, rather than going short Nvidia and the broader basket of chip plays, I think it makes more sense to go long Nvidia and short the semis.
Shares just keep getting cheaper
With shares trading at 22.2 times forward price-to-earnings (P/E) and no signs that AI demand is slowing, ahead of what I believe could be a Vera Rubin boom (one of the timeliest catalysts of the year, in my books), value and growth investors alike might have something to love from the stock after a 16% drop from peak levels.
So, whichever AI trend you’re looking for next (whether it’s agents, robotics, orchestration, or something else), Nvidia seems to be a way to cover all bases. Of course, there’s a good chance Nvidia stock gets dragged down in sympathy with the rest of the semi trade, especially as the fear of a cyclical top in DRAM and NAND intensifies well before any evidence of a slowdown surfaces.
Even if algorithmic efficiencies reduce demand for DRAM, I still think demand for Nvidia GPUs is more structural, especially as the Vera Rubin era brings forth 10x throughput-per-watt. And while Nvidia could take a hit if hyperscalers scale back a bit or announce some sort of CapEx ceiling, I certainly wouldn’t count Nvidia out of the game because there’s so much more to love than just GPUs as AI becomes more useful and, with that, monetizable.
Could higher rates, lower CapEx, and other uncertainties weigh?
Perhaps it’s the optionality that AI spenders have (if one reduces spending, others may follow) that makes the semiconductors such an uneasy trade to be in at these heights. Add Fed chair Kevin Warsh’s inflation comments into the equation, and it’s not hard to imagine a rate hike spoiling the semi party.
Even if hyperscalers do start showing some restraint, Nvidia is still going to be there when robots hit the factory floors, and 24/7 agentic coders develop the impregnable, hyper-customized software of the future. And that makes the firm a long-term hold. In my view, Nvidia isn’t just the most magnificent semiconductor stock to own, it’s also the cheapest.
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