One of the leading sector groups over the last few months has been semiconductor stocks. Excitement over the “Internet of things” as well as indications that moribund PC sales seem to be stabilizing thanks to Microsoft’s (MSFT) dropping of Windows XP support — resulting in a forced upgrade cycle for many users — have pushed the sector into a near-vertical trajectory since breaking out three months ago.
Since the beginning of May, the Market Vectors Semiconductors (SMH) is up more than 14% vs. a 5.5% gain for the S&P 500.
But the sector has lost some momentum so far this month, with selling pressure intensifying as a surge of negative volume undercuts the sector’s upward momentum. After such an exciting rise, there is evidences that a pullback looms.
For one, PC sales still stink: IDC estimates that worldwide PC shipments for the year will decline 6% from last year, which featured a 10% drop from 2012. Moreover, as quarterly results from Apple (AAPL) proved Tuesday night, the tablet market looks like it is getting saturated. iPad sales dropped 9.2% over last year. Research firm NPD said earlier this month that tablet shipments had dropped for the first time ever earlier this year (from 58.9 million in Q1 ’13 to 56 million in Q1 ’14).
In the context of all this, here are three semiconductor stocks that are looking vulnerable.