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The semiconductor rally has gone from hot to overheated. Chip-stocks-tracking VanEck Semiconductor ETF (NASDAQ:SMH) is now stretched far above its 200-day moving average — the widest gap since July 2024, right before chip stocks cratered 30% in a matter of weeks.
Chart created using Benzinga Pro
Back then, the euphoria was also AI-fueled — Nvidia Corp (NASDAQ:NVDA) was breaking records, and every chipmaker was suddenly a "picks-and-shovels" play on artificial intelligence. The parallels are striking: valuations are frothy, momentum is euphoric, and traders are ignoring how stretched the charts have become.
Since early October, SMH has surged more than 20%, outpacing the broader market by a wide margin. But this kind of vertical move rarely ends quietly — the technical setup now looks eerily similar to the July 2024 peak that preceded a brutal correction, noted Barchart.
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This isn't 2022's semiconductor slump. Nvidia, Advanced Micro Devices Inc (NASDAQ:AMD), and Broadcom Inc (NASDAQ:AVGO) are still posting robust AI-driven demand, and chip shortages in networking and data centers remain a tailwind.
The problem isn't fundamentals — it's sentiment. When everything looks priced for perfection, even a slight wobble in AI demand or CapEx spending can spark outsized pain.
Technical analysts now warn that SMH's relative strength index (RSI) is flashing overbought signals at 69.43, and prior peaks at these levels have historically triggered swift 10–20% retracements.
Semiconductor bulls have every reason to stay optimistic long term — AI's infrastructure buildout is still in early innings. But near-term, the trade looks stretched.
Last time chip stocks flew this high above their 200-day line, gravity struck fast and hard. Investors betting on a "new normal" might want to remember: momentum burns brightest right before it goes dark.
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