Is it safe to invest in these chip stocks, given the potential crash risks or cheaper prices?
With the semiconductor sector experiencing a meteoric rise lately, investors are eyeing chip stocks as potential gold mines. Companies like TSMC, Nvidia, and Intel are dumping billions into new tech and manufacturing to keep up with the insatiable AI and cloud computing chip demand.
But as these stocks soar high, investors are getting skittish about a potential bubble—one that could burst if the demand for chips takes a dip. In this scenario, excessive inventory could force many chipmakers to slash their forecasts.
Is a Major Chip Stock Crash Imminent?
Financial heavyweight Mark Hulbert, writing for "MarketWatch," believes a chip crash is a real threat. He cites a study called "Bubble for Fama" by Robin Greenwood and Andrei Shleifer of Harvard University, and Yang You of the University of Hong Kong. This research used a fancy algorithm to predict bubble bursts in stock markets. A crash is defined as a drop of 40% or more in a sector over two years.
Based on the "S&P 1500 Semiconductors & Semiconductor Equipment Industry Group Index," which returned a whopping 165.5% over those two years, Hulbert reckons the chance of a crash is over 70% according to the bubble model.
Why a Chip Crash Might Not Happen
Still, even such eye-popping figures don't guarantee a crash will occur. After all, not every prolonged bull run ends in a rude awakening. The long-term demand for chips, especially AI chips, is likely to remain strong. Plus, the manufacturing capacity is nowhere near meeting this growing demand.
If anything, there's still a good chance that a prolonged market correction might provide a golden opportunity for some chip stocks. Investors should consider focusing on AI-centric companies or checking out the Chip Power Index from BÖRSE ONLINE.
Disclosure: This index is brainchild of Börsenmedien AG, which holds the intellectual property rights. The AG has a deal with the issuers of the displayed securities that grants them a license to use the index. In return, the AG gets some moolah from the issuers.
Investors might want to investigate the Chip Power Index from BÖRSE ONLINE, considering the potential for a prolonged market correction in the chip sector. Despite the study predicting a high chance of a chip crash based on past performance, the long-term demand for advanced technology, particularly AI chips, remains strong, suggesting that an opportunity for investment could still exist.
