SOXX and SMH ETFs Sink, But Barclays Stays Bullish on Semiconductor Stocks

Top semiconductor ETFs have fallen into correction territory as leading chip stocks retreat. The VanEck Semiconductor ETF (NASDAQ:SMH) and the iShares PHLX SOX Semiconductor ETF (NASDAQ:SOXX) have declined by 17% and 19%, respectively, from their year-to-date highs. Still, Barclays and UBS analysts remain optimistic about the semiconductor sector.

Barclays, UBS and Other Analysts Bullish on Semiconductor Stocks

Semiconductor stocks have pulled back sharply as investors remain concerned about tapering demand and a pullback in capital expenditure. 

Despite the recent pullback, American investors have remained bullish on semiconductor stocks. Data from ETFdb shows that the SOXX has attracted more than $5.1 billion in inflows over the past 30 days and $12 billion over the last six months. 

Meanwhile, the SMH has recorded inflows of $2.03 billion and $6.36 billion over the same periods, respectively.

In recent notes, analysts at UBS and Barclays said that they expect that semiconductor stocks will bounce back. In a note, a UBS analyst said that he expect their earnings growth will continue. It expects an earnings growth of 92% this year and 40% next year. The analyst added that:

"Demand for compute continues to exceed available supply, while capacity constraints along the supply chain are unlikely to ease quickly."

A Barclays analyst also maintained a bullish outlook, noting that there were no signs of panic in the semiconductor industry. The analyst noted that:

"The selling [is] more passive and not aggressive, and it seems more like trimming of positions rather than investors trying to leave the space."

Benzinga data shows that analysts are bullish on some of the biggest semiconductor stocks in the industry. For example, the consensus Nvidia (NASDAQ:NVDA) stock forecast among analysts is $309, higher than the current $202. 

Similarly, Micron (NASDAQ:MU) target is $1,390, up substantially from the current $848. Taiwan Semiconductor (NYSE:TSM) has a target of $475, higher than the current $398. 

At the same time, semiconductor companies have become bargains despite their strong revenue and earnings growth. For example, Nvidia has a forward price-to-earnings ratio of 22, lower than the S&P 500 Index average of 20. Micron and SanDisk have become among the cheapest names in the Nasdaq 100.

Technicals Suggest SOXX ETF Weakness Before Rebounding

The daily chart shows that the SOXX ETF has slumped from a high of $655 to the current $521. It has already moved below the 50-day Exponential Moving Average (EMA).

The most likely scenario is that the fund will continue to decline, potentially falling to its 200-day moving average at $420. 

Such a pullback would likely reflect mean reversion, a market phenomenon in which an asset retraces toward its long-term average after an extended rally. If that happens, the ETF—along with SMH—could establish a stronger base and eventually rebound toward its year-to-date high.

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