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Stocks: iShares Semiconductor ETF (SOXX) surged 42% in a single month after a 16% March decline, but faces correction risk as the sector trades at extreme overbought levels; Nvidia (NVDA) has gained only 10% in the past month and sits near $200 support, making it less heated than peers; Micron (MU) and Advanced Micro Devices (AMD) have surged 66% and 74% respectively this month.
Michael Burry’s new bearish put options against the semiconductor ETF have strike prices at $330, positioning him to win from a big sector plunge that feels overdue, given the explosive 42% rally and missed growth targets from OpenAI.
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It didn't take long for the semiconductor stocks to start melting up again. It's been quite the roller-coaster ride, but if investors held on to something like the iShares Semiconductor ETF (NASDAQ:SOXX), my preferred gauge of the semis and a renewed short (in the form of bearish put options) of the great Dr. Michael Burry, through the 16% March slump, the explosive move off the bottom was more than rewarding.
Suddenly, the semiconductors went from toppy and dangerous to scorching-hot again, but if you missed the move, it might not take all too long before there's another chance to punch a ticket.
Undoubtedly, this isn't the first time that Michael Burry has bet against the iShares Semiconductor ETF. He tried his luck with January 2027 put options against the semi index way back in 2023. That was just under three years ago, or, if you're tracking the more striking percentage move, a 185% or so gain ago. Time will tell if Burry will have better luck with his latest bearish bet against one of the most heated parts of the market.
Given the explosiveness of the latest move, it might not take a bursting of the AI bubble for Burry's bet to wind up deep in the money. A 42% move in a single month is quite absurd, and a reversal of such a move, I think, would be more than healthy for the state of the AI trade. In my view, there's just way too much heat that might lead to more bubbliness issues later if the latest violent spike isn't corrected.
Of course, Burry could be wrong with his timing once again, especially since his strike price is quite a ways away at $330 per share. Any way you look at it, I think Burry is getting a pretty fair deal on the puts, especially if he thinks a big move (let's say a 30% drop or more) is in the forecast before the year's close.
Given the steep ups and downs in the semis and the latest OpenAI report that it missed growth targets, which I don't think the market has fully digested, I'd not bet against Burry this time around, especially since a normal correction for such an overheated industry could easily exceed 50% without having to drag down the rest of the market.
At this point, the semiconductor scene isn't just overbought; it's extreme, perhaps so extreme that it might not take much for momentum to reverse. But that's just my humble opinion.
Even a big drop doesn't mean semiconductor plays should be avoided at all costs, though. Some of the names, most notably Nvidia (NASDAQ:NVDA), might just be a 10% dip away from hitting a steady floor of support just south of $200 per share. The GPU giant may have hit new highs, but the stock has only gained a relatively lukewarm 10% in the past month.
Meanwhile, Micron (NASDAQ:MU) and Advanced Micro Devices (NASDAQ:AMD), which are up over 66% and 74%, respectively, in the past month alone, might be in for a rougher ride once the tides finally turn.
At this juncture, I wouldn't follow Burry by betting against the broad basket of semis. Though I would prepare for a turn and be ready to seize opportunities on the way down, especially in a name like Nvidia that might fall in sympathy with the names that have been far more heated in the past month. Such a dip might be the entry point before Vera Rubin really hits the ground running.
It's hard to tell when the semiconductors will move lower again, or what'll nudge them down. But after the latest spike, I'd say waiting for a pullback with a buy list is more prudent than chasing the heat or betting against the basket.
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