After underperforming the broader market this quarter, the semiconductor sector could be on the cusp of a resurgence. VanEck Semiconductor ETF NASDAQ: SMH gained only 8.36% in the quarter, underperforming the Invesco QQQ ETF. NASDAQ: QQQwhich grew by almost 14%. However, that could change following Broadcom Inc.’s stellar earnings and prospects. NASDAQ: AVGOone of the industry’s giants and the newest member of the trillion-dollar club. As the SMH ETF retraces key technical levels and approaches significant resistance, investors are wondering: Is now the time to re-enter the semiconductor sector?
Broadcom’s impressive prospects highlight sector strength
Broadcom today
(As of 11:51 a.m. ET)
- 52 week range
- $104.15
▼
$251.88
- Dividend yield
- 0.88%
- P/E ratio
- 209.19
- Target price
- $220.54
Broadcom, the third-largest semiconductor company by market capitalization and a key 7.7% stake in the SMH ETF, delivered breakout performance in its latest fourth-quarter results. The chipmaker’s revenue rose 51.2% year-over-year to $14.05 billion, and earnings per share (EPS) of $1.42 topped analysts’ estimates of $1.39. This marked Broadcom’s first foray into the trillion-dollar club, which now has a market capitalization of more than $1.1 trillion.
Broadcom’s optimistic outlook for AI-related revenue was a major catalyst for its results. CEO Hock Tan said Broadcom’s AI and connectivity chip business is projected to generate $60 billion to $90 billion annually by fiscal 2027, a sharp increase from the $12.2 billion recorded in fiscal year 2024. This growth opportunity is driven by partnerships with hyperscale clients such as Google. NASDAQ: GOOGLEMetaplatforms NASDAQ: METAand ByteDance enable Broadcom to capture significant market share in the AI infrastructure space.
Tan’s comments brought fresh optimism as AI remains a cornerstone of semiconductor growth, giving investors reason to believe the sector’s prospects are turning brighter after a period of uncertainty.
From Bearish to Bullish
The semiconductor sector has faced challenges since the November 5 election. Industry Leader NVIDIA NASDAQ: NVDAthe top holding of the SMH ETF, has declined slightly since early November and is down almost 5% this week alone. Heightened geopolitical risks, valuation issues and macroeconomic headwinds, including slowing consumer electronics demand, contributed to the sector’s weaker performance.
Investors also poured capital into the Magnificent Seven stocks: Apple NASDAQ:AAPLMicrosoft NASDAQ: MSFTTesla NASDAQ:TSLAAlphabet NASDAQ: GOOGLEand Amazon NASDAQ:AMZNwhich have dominated the market in recent weeks.
VanEck Semiconductor ETF Today
VanEck Semiconductor ETF
(As of 11:51 a.m. ET)
- 52 week range
- $163.97
▼
$283.07
- Dividend yield
- 0.42%
- Assets under management
- $24.31 billion
However, the narrative may change. With Broadcom’s stellar earnings and the “Magnificent Seven” stocks trading at elevated RSI levels, investors may see opportunities emerging in the semiconductor sector. The SMH ETF reflects this potential shift by reverting to its 20-day, 50-day and 200-day moving averages. As of Monday’s close, the ETF hovered near downtrend resistance, signaling that a break above the $235 level could confirm a trend reversal on a higher time frame.
Positive investment inflows further strengthen the sector’s position. Over the past three months, SMH has seen a 2.15% increase in inflows, indicating renewed interest. If capital begins to shift away from big tech leaders and the market expands, semiconductors could benefit from a notable resurgence.
Watching for Rotation Confirmation and Breakout
The key going forward will be to monitor whether capital begins to flow back into the semiconductor industry if the performance of the Magnificent Seven stocks slows. If semis can break through current resistance levels while established tech leaders consolidate, it could mark the start of a sector rotation, anchoring a broader recovery. Broadcom’s strong AI-powered outlook and SMH’s improving technical position suggest the semiconductor sector could have growth potential, especially if a return to the sector is confirmed as the market expands.
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