Chips remain on fire in 2024 despite the recent volatility in earnings reports. Investor sentiment unequivocally is that semiconductors will continue to rally into year-end. That bullish consensus makes this former CBOT pit trader take pause, and I believe now is the time to hedge some semiconductor exposure.
I want to use put options in the VanEck Semiconductor ETF (SMH) to mitigate downside risk. As Nvidia CEO Jensen Huang has been on a coast-to-coast roadshow, the AI darling has hit a new all-time high of $140.89 on Thursday.
That came in the wake of better-than-expected results from contract chipmaker Taiwan Semiconductor , which counts NVDA as one of its biggest customers. (NVDA has a 21% weighting inside of SMH) The only warning for chips has been in recent earnings from ASML , the Dutch microchip-equipment maker. ASML got taken to the woodshed after saying the market recovery for semiconductors will take longer than expected, sending shares sharply lower.
Again, this has been offset as NVDA's CEO consistently has articulated demand is "insane." We have to wait until 11/21 for their earnings. For clarity, I am not walking away from my AI exposure, I just want to hedge and synthetically book profits as SMH is up more than 40% after rising 72% in 2023.
There was an old adage on the trading floor in Chicago: "Pigs get fat, Hogs get slaughtered". Lastly, I want to consider the technicals setup, as when emotion gets injected into the marketplace, technical typically take ove.