Investing.com – The semiconductor sector has been a focus of investor interest in recent years, driven by its crucial role in technology and the global economy.
However, recent market trends have introduced both opportunities and challenges to semiconductor stocks.
“Semiconductor stocks came under sharp pressure as part of a broader technology correction in early August,” UBS analysts said.
The Philadelphia Semiconductor Index, a leading benchmark, fell as much as 21% between July 10 and August 5. The drop was part of a broader selloff in global technology stocks, with the MSCI AC World Technology Index also down 16% over the same period.
The decline was mainly due to crowded deal liquidation, disappointing Q2 earnings, and systematic selling, which had a particularly strong impact on well-known semiconductor companies.
However, the sector has since rebounded, with major indexes showing a significant rebound from their early August lows. The Philadelphia Semiconductor Index is up about 20%.
“The subsequent recovery gives way to a period of two-way risks for the sector,” the analysts said. These risks include potential macroeconomic headwinds and regulatory challenges, particularly around U.S.-China relations and potential new restrictions on chip exports.
Anticipation of Apple’s (NASDAQ:) product launch in September is seen as a potential short-term catalyst that could further impact market sentiment.
“We remain a strong favorite for the US IT sector given its promising technology fundamentals,” the analysts said.
However, they advise investors to be cautious and not to be complacent, as global technology valuations are approaching high levels again, with the sector trading near 25 times the 2025 price-to-earnings ratio.
UBS advises investors to closely assess their exposure to technology and AI within their portfolios. For those with limited exposure, structured strategies can be an effective way to build long-term positions in AI.
Conversely, investors with significant exposure may consider strategies that focus on capital preservation. Despite current market volatility, UBS forecasts earnings growth in the mid-20s for the global technology sector through 2025, making it a promising long-term investment opportunity.
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