Retail investors are still buying the dip in chip stocks, but capitulation in the sector could mean the broader market has bottomed, research firm says

• Chip stocks have sunk to a two-year low but retail investors keep buying the dip, Vanda Research says.
• Individual investors purchased a net $812 million in chip stocks over the past five trading sessions.

Chip stocks have sunk to a two-year low on the back of revenue warnings and expanded restrictions on technology sales, but retail investors remain buyers of the beaten-down industry group, research firm Vanda said Wednesday.

The Philadelphia Semiconductor index, or SOX, marked a fifth consecutive loss on Wednesday. The recent run of declines has pushed the index to its weakest point since September 2020. It has given up roughly 44% of its value during the year. Among exchange-traded funds, the iShares Semiconductor ETF has slumped about 20% over the past month.

"Semiconductor stocks continue their slide, but retail investors remain undeterred," Marco Iachini, senior vice president of research, at Vanda, wrote in a weekly update.

"Indeed, buy-the-dip sentiment remains strong," he said. Individual investors purchased a net $812 million in chip stocks over the past five trading sessions, an amount that was 28% more than this year's weekly average of $636 million.

Stock in AMD and graphics chips maker Nvidia each drew in net purchases of more than $300 million in the past five days.

Retail investors, seen as contrarian market participants, kept buying chip stocks even in the face of disappointing developments over the past two weeks, Vanda said. AMD warned of a potential revenue shortfall of more than $1 billion for the third quarter, saying demand in the PC market has weakened significantly. It expects revenue of $5.6 billion compared with its outlook of roughly $6.7 billion.

Samsung offered a downbeat sales view for its third quarter and Micron's first-quarter sales outlook issued last month fell short of expectations. Meanwhile, the Biden administration last week ramped up export controls on semiconductor sales and technology to China.

"A retail capitulation in this (strongly favoured) sector would give us greater conviction that we're near a broad market bottom. We keep waiting," said Vanda, whose VandaTrack tool monitors retail activity in more than 9,000 US stocks and ETFs.

Tech stocks as tracked by the Nasdaq Composite have tumbled into a bear market, with the index down 33% this year, and the S&P 500 has lost about 24%. Stocks have been hit by worries about the impact of higher borrowing costs as the Federal Reserve steps up interest rates to lower inflation by slowing economic activity.