After trailing the broader market this quarter, the semiconductor sector could be on the cusp of a resurgence. The VanEck Semiconductor ETF (NASDAQ: SMH) has only gained 8.36% quarter-to-date, underperforming the Invesco QQQ ETF (NASDAQ: QQQ), which climbed nearly 14%. However, the tide may be turning following stellar earnings and outlook from Broadcom Inc. (NASDAQ: AVGO), one of the sector's giants and the newest member of the trillion-dollar club. With the SMH ETF reclaiming key technical levels and approaching significant resistance, investors are left asking: Is now the time to re-enter semiconductors?
Broadcom’s Impressive Outlook Signals Sector Strength
Broadcom, the third-largest semiconductor company by market capitalization and a key 7.7% holding in the SMH ETF, delivered a breakout performance in its recent Q4 results. The chipmaker’s revenue surged 51.2% year-over-year to $14.05 billion, while earnings per share (EPS) of $1.42 topped analyst estimates of $1.39. This marked Broadcom’s first foray into the trillion-dollar club, with its market cap now exceeding $1.1 trillion.
Broadcom’s bullish outlook for AI-related revenue was a major catalyst for its performance. CEO Hock Tan revealed that Broadcom’s AI chip and connectivity business is projected to generate between $60 billion and $90 billion annually by fiscal 2027, a sharp increase from the $12.2 billion recorded in fiscal 2024. This growth opportunity, driven by partnerships with hyperscaler customers like Google (NASDAQ: GOOGL), Meta Platforms (NASDAQ: META), and ByteDance, positions Broadcom to capture significant market share in the AI infrastructure space.
Tan’s comments instilled renewed optimism, as AI remains a cornerstone for semiconductor growth, giving investors a reason to believe the sector’s outlook is turning bullish after a period of uncertainty.
From Bearish Sentiment to a Bullish Setup
The semiconductor sector has faced challenges since the November 5 election. Industry leader NVIDIA (NASDAQ: NVDA), the SMH ETF's top holding, has been down slightly since early November and declined nearly 5% this week alone. Heightened geopolitical risks, valuation concerns, and macroeconomic headwinds, including slowing demand in consumer electronics, contributed to the sector’s underperformance.
Investors also rotated capital into “Magnificent Seven” stocks: Apple (NASDAQ: AAPL), Microsoft (NASDAQ: MSFT), Tesla (NASDAQ: TSLA), Alphabet (NASDAQ: GOOGL), and Amazon (NASDAQ: AMZN), which have dominated market gains in recent weeks.
However, the narrative may be shifting. With Broadcom’s stellar earnings and the Magnificent Seven stocks trading at elevated RSI levels, investors could see opportunities emerging within semiconductors. The SMH ETF reflects this potential shift, having reclaimed its 20-day, 50-day, and 200-day moving averages. As of Monday's close, the ETF hovered near downtrend resistance, signaling that a breakout above the $235 level could confirm a higher-timeframe trend reversal.
Positive inflows further bolster the sector’s case. SMH saw a 2.15% increase in inflows over the last three months, indicating renewed interest. If capital begins to rotate out of extended tech leaders and market breadth improves, semiconductors could benefit from a notable resurgence.
Watching for Rotation and Breakout Confirmation
The key going forward will be monitoring whether capital begins to flow back into semiconductors if momentum stalls in the Magnificent Seven stocks. If semis can break above current resistance levels while prominent tech leaders consolidate, it could mark the beginning of a sector rotation, solidifying a broader recovery. Broadcom’s strong AI-driven outlook and SMH’s improving technical position suggest the semiconductor sector may be positioned for upside, especially if rotation back into the sector is confirmed as market breadth improves.
