Semiconductor sector ends 18 consecutive rallies, market cautious of overheating valuation but storage concept stocks still seen positively.

After experiencing an epic rally, concerns about overvaluation in the semiconductor sector have begun to emerge. The iShares Semiconductor ETF (SOXX.US), which tracks the chip sector, had risen for 18 consecutive trading days, setting a rare record. However, this momentum came to an end on Monday, with the iShares Semiconductor ETF falling by 1.34%. The market focus has now shifted to whether investors should continue to chase chip stocks. During the 18-day rally ending last Friday, the iShares Semiconductor ETF had risen by nearly 50%. On Friday, it rose by nearly 5% driven by strong performance from Intel Corporation (INTC.US) and an analyst upgrade for AMD (AMD.US). However, the rapid rise has also increased valuation pressures. According to FactSet data, the current forward P/E ratio of the iShares Semiconductor ETF is close to 26 times, significantly higher than the 10-year average of about 19 times, and a 17% premium to the S&P 500 index. Historically, this ETF has usually traded at a slight discount to the broader market. Analysts point out that the market is almost in a phase of "perfect pricing." Interactive Brokers' Chief Market Strategist Steve Sosnick warned that the main risk currently is that the market expectations are too high and corporate performance may struggle to exceed expectations. In terms of individual stock performance, this rally has covered almost the entire chip sector. Even the weakest performer, Qualcomm (QCOM.US), has risen by 16% since March 30. NVIDIA Corporation (NVDA.US) has risen by 22%, and is even considered a "laggard" in the sector. Leading gainers include Credo Technology (CRDO.US), Astera Labs (ALAB.US), and Intel Corporation, all of whom have doubled in value during the 18-day rally. At the same time, Marvell Technology, Inc. (MRVL.US), AMD, Texas Instruments Incorporated (TXN.US), Micron Technology, Inc. (MU.US), and Arm Holdings (ARM.US) have seen gains of over 50%. Bespoke Investment Group points out that the Philadelphia Semiconductor Index, which has a similar trend to the iShares Semiconductor ETF, may have become overheated. Historically, there has only been one 18-day period with higher gains, which was during the rebound phase after the burst of the 2002 internet bubble. However, not all sub-sectors are considered to be overvalued. Mizuho analyst Jordan Klein believes that storage chips may still offer better value under the hype surrounding CPU stocks. He points out that while Micron (MU.US) and SanDisk (SNDK.US) have also seen significant gains, their valuations are significantly lower than AMD, Arm, and Intel Corporation. Micron has a forward P/E ratio of around 6 times, SanDisk around 10 times, while AMD, Intel Corporation, and Arm have ratios as high as 42 times, 74 times, and 103 times respectively. Market participants believe that this could mean that funds may rotate from the overvalued AI compute power segment to the storage sector in the future. Particularly against the backdrop of structural growth in storage demand driven by AI, Micron and SanDisk may still have room for revaluation. However, some strategists warn that the semiconductor industry is fundamentally cyclical. Jones Trading Chief Market Strategist Mike O'Rourke points out that the industry is indeed in a strong growth cycle currently, with short-term demand still supported, but the larger the cycle, the higher the risk of a downturn towards the end.