AI chip rout may be helping the bull market, strategist says
Robert Ross says the semiconductor selloff is shaking froth out of AI trades while investors rotate into other market sectors.
By Sal Moretti · Money Reporter
3 min read
The AI trade has taken a hard hit: the PHLX Semiconductor Index has fallen more than 20% from its peak, putting the chip benchmark in bear-market territory, according to MarketWatch columnist Robert Ross.
Ross, founder of TikStocks and author of “A Beginner’s Guide to High-Risk, High-Reward Investing,” argues the selloff may be less a market breakdown than a pressure release after a fierce rally in semiconductor and AI-infrastructure stocks.
In his MarketWatch opinion column published Wednesday, Ross wrote that the S&P 500 has held up despite the chip slump and is still up almost 10% for the year. He said that gap suggests investors are not abandoning stocks across the board.
Money is moving, not vanishing
Ross pointed to the Invesco S&P 500 Equal Weight ETF, which he said reached another record high last week, as evidence that market leadership is widening beyond the biggest AI winners.
He also cited a rise in the number of stocks trading above their 200-day moving averages, saying that measure is stronger than at any other point this year.
According to Ross, cash has been shifting out of crowded AI trades and into areas including healthcare, financials and selected megacap technology names. He said that broader participation could make the bull market sturdier than one driven mainly by semiconductor stocks.
The pullback comes after sharp gains in AI-linked shares. Ross named memory company SanDisk, server maker Dell Technologies and chip supplier Intel as examples of businesses whose stocks had climbed so quickly that investors appeared to forget how volatile those industries can be.
Burry’s warning gets a fresh airing
Ross noted that investor Michael Burry and other AI skeptics have warned for months that Big Tech’s capital-spending boom may not be sustainable. He said the recent drop will likely be viewed by those skeptics as support for their case.
Ross takes the other side. He argued that the AI investment cycle has not ended just because share prices stopped racing higher. He also said he has been buying AI stocks this week and believes chip shares may be near a bottom, though he did not say they had definitely reached one.
Analysts expect semiconductor profits to climb 133% from a year earlier, Ross said. He added that chip makers alone could generate nearly half of the S&P 500’s second-quarter profit growth.
Risk is showing up
Ross warned investors that portfolios packed with different AI-related names may be less diversified than they look. A memory company, a server maker, a chip-equipment supplier, a data-center operator and speculative small caps can still amount to one broad bet on AI capital expenditures, he said.
That can feel terrific when the trade is rising, Ross argued, but painful when the market rotates and those holdings move down together.
For investors who still want exposure to AI stocks, Ross said they should sit alongside a more durable core. He listed S&P 500 index funds, blue-chip companies, value stocks and cash as examples of holdings that can help reduce portfolio swings.
Ross disclosed that he owns shares of SanDisk and Dell.
This story draws on original reporting from MarketWatch.