Semiconductor Bubble Bursts: Software Stocks See Rotation

SB Research has been bearish on the VanEck Semiconductor ETF (SMH.US) and several semiconductor companies, including Lumentum (LITE.US), SanDisk (SNDK.US), Applied Optoelectronics (AAOI.US), Western Digital (WDC.US), Marvell Technology (MRVL.US), and MaxLinear (MXL.US).

The firm built a larger position in software during the second quarter of this year, which initially looked like a foolish call. However, research and patience have paid off as that call is beginning to prove correct.

The AI trade has split into two camps: 'picks-and-shovels' companies and software. Semiconductor names moved sharply and often violently, while software stocks remained muted and continued to bleed.

Fed Chair Kevin Warsh has acknowledged the dynamic of ever-expanding pools of capital pouring into AI-related infrastructure, which is driving up construction and memory-chip costs in the short run.