Note, I agree further cloud development and 5G will be a major innovation in the future but disagree that they will cause chip demand to boom. Buzzword-prone narratives including "the cloud", "Internet of Things", and "5G" causing mass irrational exuberance in technology stocks.That fact that most of the global middle and even lower class now has a smartphone and home computer.Stratospheric valuations (in a highly cyclical sector).The lower need to replace chips due to slowing performance innovation.Negative chip demand growth and falling prices.When returns have been high, it is very hard to change your mind, even in the face of rising bearish factors.
Indeed, most investors in chips have made a killing due to the boom in chip demand that lasted until the global economy topped out in 2018.
While I greatly appreciate all thought-out comments, cognitive dissonance seems to be extreme among many investors in the sector today. By in large, almost everyone who commented was long semiconductors and was unhappy to hear about the rapidly growing risks in the industry. On the 4th of October, I released an article covering ( SMH) called: SMH: Prepare For A Long Global Semiconductor Depression that explained my very bearish view of most chip stocks. Of course, they quickly recovered and have since made new highs, but an even larger drawdown seems to be around the corner. Highly levered chip ETF's like the 3X bull semiconductors ETF ( NYSEARCA: SOXL) fell 64%. Remember a year ago when customers were 'less cautious' chip stocks were melting down, the popular chip ETF's ( SMH) and ( SOXX) lost 25% of their value in a matter of months. They mention the trade tensions that we know have been happening, and have been kind of accumulating over the last three or four quarters, and the consistency of that breadth of weakness supports that this is a macro situation that is driving the further weakness that we’re seeing. Our sense is that customers are just far more cautious than they were certainly a year ago, but even 90 days ago, and many of them talk about the caution. After trading hours on Tuesday, Texas Instruments ( TXN) crashed 10% as the company adjusted its outlook for lower earnings and revenue.
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