Investors are bracing for a possible crash in the semiconductor stock sector, the backbone of the artificial intelligence (AI) boom led by key players such as Nvidia (NASDAQ: NVDA).
Specifically, there has been a sharp increase in the spread of out-of-the-money puts relative to calls on the VanEck Semiconductor ETF (SMH), signaling mounting bearish bets, according to Bloomberg data shared on February 4.
Based on the data, it can be deduced that there is anxiety among investors, with the skew for 90-110 strike options soaring to levels not seen since mid-2024. This trend hints that investors are hedging aggressively against chip stock declines.
Picks for you
Drivers of uncertainty in semiconductor stocks
Notably, semiconductor companies have been the driving force behind the AI boom, considering the chips they design and produce remain central to powering models such as ChatGPT.
The shift in investor sentiment comes at a time when the semiconductor space and the stock market remain in a state of uncertainty.
For instance, the ongoing trade wars initiated by the United States against China could hamper growth in the sector, given the critical role of the global supply chain in the AI space.
At the same time, U.S. policies restricting technology exports to China, coupled with political rhetoric concerning Taiwan—a global hub for semiconductor production—have historically led to market jitters.
Meanwhile, the emergence of DeepSeek, a Chinese AI startup, has also resulted in uncertainty within the chip sector. The platform’s AI model, which has reportedly been trained on fewer resources than its Western counterparts, has raised concerns about future AI infrastructure spending.
This challenges the need for high-end, expensive hardware, traditionally tied to technology giants such as Nvidia, and raises concerns about the possible eroding dominance of U.S. AI and semiconductor firms.
Dot-com bubble parallels
Adding to these concerns, in recent months, Nvidia’s meteoric rise has also been equated to the 2000 Dot-com bubble. In this case, an analysis by Global Markets Investor in an X post on January 27 noted parallels between NVDA and Cisco (NASDAQ: CSCO).
Back in 2000, Cisco was the backbone of the internet revolution, but after the bubble burst, its stock plunged over 80%—a peak it never reclaimed.
Both companies soared on transformative technology, networking then and AI now, fueling extreme valuations.
Yet, Nvidia differs in key ways: it dominates a highly profitable AI market, faces limited competition, and enjoys pricing power. However, the possibility of Nvidia experiencing a bubble burst cannot be ruled out, although NVDA can remain afloat, provided AI continues to deliver.
Featured image via Shutterstock
