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Demand worries are putting pressure on the chipmaker trade.
In the past three months, the SMH semiconductor ETF has fallen more than 1%, missing out on the broader S&P 500’s 3% rally.
The group added to losses on Friday after Samsung warned that weak memory chip demand could have reduced second-quarter profit by as much as 56%.
“The Samsung news shouldn’t be a surprise to anyone. Smartphone unit sales are down, memory chips have been weak for a while so you’ve got both supply and demand issues there,” said Mark Tepper, president of Strategic Wealth Partners, on CNBC’s “Trading Nation ” on Friday.
Indiscriminate selling in the group could open up opportunity for stock pickers, he added.
“The best way to really play this right now is to be selective,” said Tepper. “Invest in companies that allow you to participate in the highest growth end markets… like AI, autonomous vehicles, data center, gaming so the company we like here is Nvidia. We like Nvidia because it gives us exposure to all of those areas. “
Nvidia is the worst performer of the SMH ETF over the past three months, falling 16% since early April. It is also 45% off its all-time high set last October.
“They did have some issues last year with their crypto exposure but those troubles are behind them so it looks like a good buy at this level,” said Tepper.
Mark Newton, technical analyst at Newton Advisors, says any weakness should be bought ahead of what could be a sharp near-term rally.
“It’s still right to be bullish on the semiconductors,” said Newton during the same segment. “I’d be a buyer of any further weakness into [this] week and think that the group likely carries up to levels right near 1570 to 1600 on the SOX Philadelphia Semiconductor index. “
A move as high as 1600 on the SOX index implies 9% upside from current levels. It would also return to the index to its April all-time peak.
However, the longer-term outlook still carries some uncertainty, Newton adds.
“This peak that we saw this past April-May really occurred at lower levels of momentum so I’d really be a seller into the fall in semis but for now I still think it’s really the right place to be,” he said.