What's next for semiconductor stocks? UBS weighs in

Investing.com -- The semiconductor sector has been a focal point of investor attention in recent years, driven by its critical role in technology and the global economy. 

However, recent market trends have introduced both opportunities and challenges for semiconductor stocks. 

“Semiconductor stocks came under acute pressure as part of a broader tech correction in early August,” said analysts at UBS.

The Philadelphia Semiconductor Index, a key benchmark, saw a sharp decline of up to 21% between July 10 and August 5. This drop was part of a broader sell-off in global tech stocks, with the MSCI AC World Technology Index also falling by 16% during the same period​.

The drop was mainly due to the unwinding of crowded trades, disappointing second-quarter earnings, and systematic selling, which had a particularly strong impact on well-known semiconductor firms. 

However, the sector has since bounced back, with major indices showing a significant recovery from their early August lows. The Philadelphia Semiconductor Index surged by around 20%.

“The subsequent rebound gives way to a period of more two-way risks for the sector,” the analysts said. These include potential macroeconomic headwinds and regulatory challenges, particularly concerning the U.S.-China relations and possible new restrictions on chip exports. 

The anticipation of Apple (NASDAQ:AAPL )'s product launch in September is seen as a potential short-term catalyst that could influence market sentiment further​.

“We remain most preferred on the US IT sector given still promising tech fundamentals,” the analysts said.

However, they advise investors to be cautious and not become complacent, as global tech valuations are approaching high levels once again, with the sector trading near 25 times the 2025 price-to-earnings ratio.

UBS advises investors to closely assess their level of exposure to technology and AI within their portfolios. For those with minimal exposure, structured strategies could be an effective way to establish long-term positions in AI. 

Conversely, investors with significant exposure might consider strategies focused on preserving capital. Despite the present market volatility, UBS expects mid-teen earnings growth for the global tech sector in 2025, making it a promising long-term investment opportunity.

Source: Investing.com