It's Boom-or-Bust Time for Semiconductor Stocks

By Brett Eversole

Boring stocks often make the best long-term investments...

Walmart (WMT), for example, isn't going to blow anyone away with exciting technology or a new grand vision. But it grows, year after year. And investors have made a killing since the company went public.

The boom-and-bust sectors are completely different. These businesses do incredibly well on one side of the cycle... only to see sales grind to a halt on the other side.

The semiconductor space is one of those sectors. These stocks have been in a spectacular boom, more than doubling in less than two years. But a recent setup has raised questions about what's next...

According to history, this sector is about to either boom or bust in a big way. And given how important semiconductors have become for the overall market, you need to prepare today...

---

Recommended Links:

'A New Surge of Crashes Will Rock the U.S. Stock Market' The man CNBC's Jim Cramer said he would never bet against is issuing a dire warning on September 19. That's when Wall Street legend Marc Chaikin is stepping forward to warn you of the 90-day threat that's coming and how you need to prepare immediately. We recommend you get the facts for yourself – learn more here. Election Uncertainty Is Stoking Volatility in the Stock Markets We're not trying to be political... But whether you're for Trump or Harris, whoever wins will do a LOT to the economy. That's why your investments could be at stake right now – potentially more than at any point in history. We urge you to watch this presentation by Altimetry founder Joel Litman, whose research is so groundbreaking, top brass at the Pentagon and FBI consult him on financial issues. Click here to view the full report.

---

The trend is your friend in investing. And that's especially true in a boom-and-bust sector like semiconductors.

When this group gets moving, it tends to keep moving. And as we've seen in recent years, these stocks can soar to unimaginable heights when the trend is in their favor.

The health of the current boom is in question, though. That's because semiconductor stocks recently had one of their worst days ever. The PHLX Semiconductor Sector Index ("SOX") dropped 7.8% on September 3.

The drop was in large part due to disappointing earnings from Nvidia (NVDA), the index's largest holding. The stock was down 9.5% on the day. And it pulled the entire index down with it.

It was the worst day for semiconductor stocks since the pandemic-induced crash in March 2020. Take a look...

This sector was in a powerful uptrend. Now, with prices falling, that might be changing.

The massive one-day decline was jarring on its own. And a normal look at history doesn't show the whole picture. Here's what happened after similar one-day drops in the past...

We can see that semiconductor stocks have a history of slight underperformance after big one-day drops. But even that doesn't tell the full story.

When we look at the individual cases, we see huge booms and major busts after times like these. Here's what happened after each of the nine other one-day drops over the past 30 years...

What jumps out from this table is the extreme volatility. We've got a one-year gain nearing 170%, and a one-year loss of more than 40%.

In every case, semiconductors swung by at least 10% (positive or negative) after a year. And seven out of nine instances led to moves of 20% or more (again, positive or negative). So big moves took place in both directions.

In short, semiconductors are a boom-and-bust sector. And after a big one-day decline, a major boom or bust is likely in the months ahead.

We don't know which we'll get this time around. But you'll want to watch semiconductor stocks closely in the months ahead... because once the trend takes hold, history tells us the eventual move will be a big one.

Good investing,

Brett Eversole