The semiconductor ETF NASDAQ:SMH is currently trading at an all time high because of the belief that there will be increased demand for semiconductors arising from the applications of generative AI. However, on a fundamental level, semiconductor revenue has been dropping for the past five consecutive quarters (Omdia). In fact, in the first quarter of 2023 alone, semiconductor revenue dropped 9% from the previous quarter (Omdia).
As I see it right now, here are some positive points for semiconductor companies:
Generative AI has increased demand for semiconductors
Cryptocurrency prices are high, increasing demand for semiconductors
and some negative points for semiconductor companies:
Overextended from Moving Average 300
Generally declining demand
Decreased consumer demand for gaming PCs as Economy heads into recession (since gaming PCs are a luxury good)
US Semiconductor Equipment is being used in China, increasing supply and therefore decreasing price for semiconductors.
Burry entered a large put position on SOXL, and NVDA put premium is currently extremely high
Overall, I am bearish on semiconductors because I think the AI argument is priced in excessively considering the previously dropping demand, and have purchased puts to profit off a potential fall in the value of semiconductor companies.