What Happened?
A number of stocks fell in the afternoon session after chip stocks sold off in a session that laid bare the structural tension building beneath the sector's recent rally.
Bank of America's fund manager survey, released in the morning, showed that 80% of respondents viewed semiconductors as the most crowded trade, the highest reading in the survey's history. When that many professional investors are simultaneously aware they are overweight the same position, the incentive to move first is powerful.
The exit had additional urgency from two macro reads. May import prices came in at 1.9%, nearly double the 1.1% consensus, with an annual gain of 6.7%, the largest since August 2022. The data complicated the narrative that the Iran peace deal had resolved the inflation problem. The market was also anticipating Kevin Warsh's first meeting as Federal Reserve Chair, with some fund managers expecting a hawkish hold.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Semiconductor Manufacturing company Marvell Technology (NASDAQ: MRVL) fell 6.8%. Is now the time to buy Marvell Technology? Access our full analysis report here, it’s free.
- Semiconductor Manufacturing company Nova (NASDAQ: NVMI) fell 7.2%. Is now the time to buy Nova? Access our full analysis report here, it’s free.
- Semiconductor Manufacturing company KLA Corporation (NASDAQ: KLAC) fell 6.8%. Is now the time to buy KLA Corporation? Access our full analysis report here, it’s free.
Zooming In On Nova (NVMI)
Nova’s shares are extremely volatile and have had 37 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 4 days ago when the stock gained 3.9% on the news that President Trump canceled planned military strikes on Iran and signaled a peace deal could be signed over the weekend.
Intel contributed an additional tailwind after Bank of America double-upgraded the stock from underperform to buy. War-driven inflation had lifted Treasury yields, compressing the valuations on capital-intensive chip stocks. Separately, the Strait of Hormuz closure disrupted the chemical and specialty-gas supply chains that semiconductor fabrication depends on. Oil falling back toward $87 a barrel and the 10-year yield dropping would ease the knock on effects from both.
Nova is up 61.1% since the beginning of the year, and at $559.69 per share, it has set a new 52-week high. Investors who bought $1,000 worth of Nova’s shares 5 years ago would now be looking at an investment worth $5,613.
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