The semiconductor sector is facing increased volatility after a robust rally in early May, according to Seaport Research. While the long-term growth potential driven by AI remains strong, some companies appear to be trading ahead of their fundamentals, which could lead to corrections in the near term. The iShares Semiconductor ETF has surged approximately 65% year-to-date, but analysts suggest that stocks with more realistic valuations, like AMD and Intel, may fare better than those with sky-high expectations, such as Nvidia.

KKM Financial highlights that the recent sell-off is largely profit-taking following significant gains, rather than a definitive end to the upward trend. Despite this, strong demand for semiconductor products persists, although rising costs for tech giants like Apple and Google due to supply shortages pose risks.

Market professionals should monitor how large tech companies adjust their data center spending, as this could impact growth expectations in the sector. The current correction may ultimately pave the way for renewed growth, provided the underlying demand remains intact.

Source: xtb.com