There is a notorious idiom among investors that states, buy when there’s blood in the streets. It refers to the strategy of purchasing stocks when markets are at their bleakest, with the hope of exponential gains in sight as the tide eventually turns. Currently, the semiconductor sector seems to be the embodiment of this principle. The VanEck Vectors Semiconductor ETF (SMH), a leading benchmark for the semiconductor industry, has recently reported significant down trends. As a result, investors find themselves at a crossroads: to buy or not to buy SMH?
Semiconductors, the heart and soul of technology, have been whipsawed through a cycle of highs and lows influenced by an array of factors such as the US-China trade war, COVID-19, and shifting supply-demand dynamics. Given the recent downward plunge, the prospect of investing in SMH has become increasingly appealing to both smart money and individual investors.
The semiconductor industry has been anything but stable in the past decade. The geopolitical tensions between the United States and China have led to uncertainties, disrupting supply chains and manufacturing. Then, the unforeseen COVID-19 outbreak pummeled global demand as fiscal and commercial activities ground to a halt. Finally, the rapid advancement of technology across sectors from gaming, artificial intelligence, and electric vehicles, to the Internet of Things (IoT) has dramatically changed supply and demand dynamics. Consequently, such market volatility has led to sharp price movements in SMH, sparking immense intrigue among investors.
Despite numerous challenges, it is important to note the growing significance of semiconductors. Semiconductors form a crucial component of a broad array of devices, from smartphones to aircraft systems. Notably, the rise of digitalization and remote work during the pandemic has reinforced the critical role of specific technology sectors where semiconductors are fundamental. Moreover, the broader technology sector is the largest and most influential sector within the S&P 500, indicating that overall market performance often aligns with tech sector health.
Furthermore, it is prudent to remember Warren Buffet’s advice when dealing with market dips: Be fearful when others are greedy and greedy when others are fearful. The recent downturn of SMH could very well be a perfect demonstration of this investment principle. Unlike other industries crippled by the pandemic, the semiconductor sector’s future is vibrant due to its essential role in facilitating technological innovation. For instance, the advent of the 5G revolution and the growing market for electric
