Chip Stocks Slide Amid Iran Tensions, Analyst Warns of Inflation and Rate Hikes

The recent surge in tensions between the US and Iran has led to a significant decline in chip stocks, with Nvidia Corp. (NVDA), Marvell Technology Inc. (MRVL), SanDisk Corp. (SNDK), SK Hynix Inc. (SKHY), and other semiconductor stocks plummeting between 2% and 8% in morning trade. The Direxion Daily Semiconductor Bull 3X Shares (SOXL) ETF was down more than 10% at the time of writing, while the iShares Semiconductor ETF (SOXX) fell over 3%. This decline can be attributed to investors flocking to safety and rotating out of chip stocks due to the ongoing war tensions.

BEN REITZES, HEAD OF TECHNOLOGY RESEARCH AT MELIUS, BELIEVES THAT THE DECLINE IS TEMPORARY AND ATTRIBUTABLE TO ROTATION. "I THINK THE WAR WHEN SOMETHING HAPPENS LIKE THIS ON A MACRO LEVEL AND INPUT COSTS COULD POTENTIALLY SPIKE UP, THE MARKET MAY FLOCK TO SAFETY. SOME OF THIS IS REALLY JUST ROTATION, I BELIEVE IT IS TEMPORARY, HOPEFULLY," HE SAID IN AN INTERVIEW WITH CNBC.

REITZES ALSO CAUTIONED THAT IT IS TOO EARLY TO GAUGE HOW THE IRAN WAR COULD AFFECT INPUT COSTS ACROSS THE SEMICONDUCTOR INDUSTRY. HIS COMMENTS COME AMID A SPATE OF STRIKES BY THE US AND IRAN FOLLOWING THE TERMINATION OF THE CEASEFIRE BETWEEN THE TWO COUNTRIES LAST WEEK.

REITZES POINTS OUT THAT IF CRUDE OIL PRICES GO UP AS A RESULT OF THE SUPPLY DISRUPTION DUE TO THE STRAIT OF HORMUZ STANDOFF BETWEEN THE US AND IRAN, IT COULD PUT PRESSURE ON CENTRAL BANKS TO RAISE INTEREST RATES TO CONTAIN INFLATION, THEREBY CAUSING INPUT COSTS TO RISE.

"THERE ARE SOME CONCERNS ABOUT HELIUM, LNG IMPACTING ELECTRICITY COSTS WHICH CAN GO THROUGH THE [SUPPLY] CHAIN," HE SAID.

IN DESPERATE ATTEMPTS TO MITIGATE THE IMPACT OF RISING INPUT COSTS, COMPANIES MAY NEED TO ADOPT COUNTERMEASURES SUCH AS PASSING ON THE COSTS TO CONSUMERS, REDUCING PROFIT MARGINS, OR EVEN IMPLEMENTING PRICING STRATEGIES TO OFFSET THE INCREASE IN INPUT COSTS.

REITZES DOES HOWEVER BELIEVE THAT THE AI TRADE REMAINS ON TRACK. "JUST A FEW WEEKS AGO, WE WERE ON THAT PATH, AND I DON'T THINK ANYTHING'S REALLY CHANGED," HE SAID.

HE ALSO LOOKS FORWARD TO UPCOMING CAPITAL EXPENDITURE PLANS FROM BIG TECH COMPANIES AND HYPERSCALERS FOR CLUES ABOUT WHERE CHIP STOCKS COULD HEAD NEXT. ALPHABET INC. (GOOG, GOOGL), INTEL CORP. (INTC), MICROSOFT CORP. (MSFT), META PLATFORMS INC. (META), APPLE INC. (AAPL), AMAZON.COM INC. (AMZN), AND OTHER TECH GIANTS ARE SCHEDULED TO REPORT THEIR LATEST QUARTERLY RESULTS OVER THE NEXT TWO WEEKS.

REITZES BELIEVES THAT THESE BIG TECH COMPANIES WILL NOT CUT BACK ON THEIR INVESTMENTS IN SEMICONDUCTORS. "I THINK WHEN YOU SEE THE FUNDS COME OUT FOR HYPERSCALERS, YOU'LL SEE CAPX INCREASES, NOT DECREASLES," HE SAID."

THE TECH-HEAVY NASDAQ COMPOSITE INDEX WAS DOWN NEARLY 1% AT THE TIME OF WRITING. THE INVESCO QQQ TRUST (QQQ) IS UP 27% OVER THE PAST 12 MONTHS, WHILE THE ISHARES US TECHNOLOGY ETF (IYW) IS UP 38%.

THE ROUT IN CHIP STOCKS IS NOT UNEXPECTED, AS TENSIONS BETWEEN THE US AND IRAN HAVE BEEN ON THE RISE FOR SOME TIME NOW. THIS SITUATION IS ONLY LIKELY TO SPREAD TO THE SEMICONDUCTOR INDUSTRY, RESULTING IN FURTHER DECLINES IN CHIP STOCKS.

REITZES IS NOT AFRAID OF THE SITUATION, BUT RATHER WELCOMES IT AS A TEMPORARY SETBACK. "I THINK WHEN THE FUNDAMENTALS COME OUT, CHIPS ARE GOING TO BE FINE," HE SAID.

RATHER THAN FOCUSING ON THE DECLINE OF CHIP STOCKS, THE ATTENTION SHOULD BE ON THE UPCOMING CAPITAL EXPENDITURE PLANS FROM BIG TECH COMPANIES AND HYPERSCALERS.