Chipmakers Are Overextended. Where Josh Brown Is Picking His Spots in the Sector

Why It Matters

The sector’s extreme valuation and momentum expose investors to sharp downside risk, making disciplined, selective exposure essential for preserving capital and capturing upside.

Key Takeaways

• SMH ETF up 38% in 18 days, now 50% above 200‑day average
• RSI for SMH at 85 signals extreme overbought conditions
• Nvidia shows strong earnings, but remains below 200‑day resistance
• Broadcom AI chip revenue to grow 140% YoY, watch $360‑$370 support
• Intel surged 100% YTD; entry likely near $60‑$65 pullback

Pulse Analysis

The semiconductor rally has been nothing short of spectacular, with the VanEck Semiconductor ETF (SMH) posting a 38% gain over an 18‑day window—outpacing every prior recovery since its inception. This surge has lifted the ETF nearly 50% above its 200‑day moving average and driven the relative strength index to an unsustainable 85, a classic sign of overbought momentum. Such technical extremes often precede corrections, especially in a sector where fundamentals, while solid, are already baked into prices. Investors who ignore these warning signs risk entering at inflated levels, potentially eroding returns when sentiment shifts.

Within the broader rally, individual stocks present divergent risk‑reward profiles. Nvidia (NVDA) continues to deliver robust top‑line growth, reporting $215.9 billion in annual revenue and a record $68.1 billion quarter, yet its price remains below the 200‑day trend line, offering a relatively cleaner entry point. Broadcom (AVGO) is capitalizing on AI‑chip demand, projecting a 140% year‑over‑year revenue surge and returning $10.9 billion to shareholders, but its RSI of 77 and price above $340 suggest caution; traders may look for a pullback to the $360‑$370 support zone. Intel (INTC) has surprised with a 100% year‑to‑date gain, but the stock’s extreme RSI of 82 and distance from the $60‑$65 pullback area indicate that patience is required before committing capital.

Microchip Technology (MCHP) illustrates a classic turnaround narrative, boasting a 141‑quarter streak of profitability and accelerating revenue from AI‑enabled IoT applications. While its RSI also sits in the high 80s, the stock has reclaimed its 200‑day moving average and is trading above key technical thresholds, making a pullback to $71 or $67 a potential entry for disciplined investors. Overall, the semiconductor sector’s current overextension underscores the importance of selective positioning, rigorous risk management, and a focus on companies that retain solid fundamentals beneath the frothy price action.