A semiconductor ETF had its worst week since 2020. Here’s what’s next

Chip stocks kicked off September with their worst stretch in over four years, as shares of artificial intelligence favorite Nvidia lost momentum and concerns over U.S. economic growth weighed on the market. The VanEck Semiconductor ETF (SMH) sank 11.7% in the Labor Day-shortened, four-day trading week. That was its worst week since a 15.2% drop in March 2020, spurred by the Covid lockdown. The sharp decline is just the latest twist in what has been a volatile summer for semiconductors. Over the past two months, the SMH has moved more than 5% on seven different trading days, according to FactSet. On Friday, it closed more than 24% below its July 10 all-time high. SMH 3M mountain This semiconductor ETF just had its worst week since 2020. The SMH has more than $20 billion in assets and is one of the most actively traded funds on the market. Its top holdings include Nvidia and Taiwan Semiconductor Manufacturing . To be sure, the semiconductor industry is no stranger to big swings. The sector is historically cyclical, tied to the ups and downs of the economy, and now it’s paired with the excitement around AI. Analysts standing by Today, however, Wall Street analysts are not abandoning ship, even with the recent turmoil. “Weeks with the SOX declining 25% and then recovering 20%, all within the span of 6 weeks (what a long, strange trip it’s been). Our call – Just Keep Truckin’ On amidst the current mid-cycle correction and remain overweight semiconductors,” Cantor Fitzgerald analyst CJ Muse wrote in a Sept. 3 note. Muse confirmed in an email to CNBC on Friday that he stands by that call despite the rough week for chip stocks. While there are struggles at some chipmakers — such as Intel , which announced layoffs in August — much of the sell-off seems unrelated to business fundamentals. For example, shares of Broadcom tumbled 10.4% on Friday despite an earnings report the day before that topped analysts’ earnings and revenue estimates. While Broadcom’s third-quarter revenue guidance was slightly less than expected, there’s no cause for alarm, as the stock sell-off suggested, Bernstein analyst Stacy Rasgon said in a note to clients Friday. “Nevertheless under the lid things are still simmering here,” Rasgon wrote. “The non-AI semi businesses at least appear to have bottomed (some starting to grow again) and the company has seen orders growing at 20%+ for the last few quarters; given their leadtimes this would suggest recovery over the next 2-4 quarters and setting up next year much better. The AI story still looks really good to us, with clear evidence of high demand and outlook for ‘strong’ growth next year.” AVGO 5D mountain Broadcom fell more than 10% on Friday after its quarterly report. Of course, it’s possible for some chip stocks to rebound even as a broad sector fund like the SMH — comprised of 26 stocks — struggles. VanEck itself launched a somewhat narrower version of the fund — the VanEck Fabless Semiconductor ETF (SMHX) , with 22 stocks — last month. The “fabless” fund is focused on companies that design chips but are not themselves major manufacturers. Nick Frasse, associate product manager at VanEck, said the idea for the new fund came from studying Nvidia which, togetrh with Broadcom, accounts for one-thid of the new fund’s portfolio. The VanEck team decided that Nvidia’s asset-light business model was key to its success, and the new ETF is designed to capture companies with similar structures that, in theory, have the flexibility to focus more on innovation. “When we looked at just kind of the long-term opportunity set, it seemed like fabless were going to be the names that were the long-term winners in the AI space,” Frasse said. This summer sell-off, however, is hitting all types of semiconductors. SMHX, too, was down more than 12% last week. Looking ahead, investors will likely get updates from several chipmakers next week at the Goldman Sachs Communacopia + Technology Conference. Executives from many of the largest semiconductor companies are scheduled to speak at the conference, including the CEOs of Nvidia and Advanced Micro Devices . — With reporting contributed by CNBC’s Gina Francolla