This is the most critical question facing U.S. investors right now - and it has nothing to do with Iran

By Joseph Adinolfi and Tomi Kilgore

Is it time to sell semiconductor stocks?

Chip stocks have pulled back from a parabolic rally, and there are technical and historical reasons for investors to worry that a deeper selloff in the sector will hurt the broader stock market.

The most impactful driver of the U.S. stock market's rebound over the past month has almost nothing to do with the conflict in Iran.

While many stocks in the S&P 500 SPX continued to chop sideways, shares of semiconductor companies have raced higher in a parabolic move that has drawn comparisons to the peak of the dot-com bubble. Technical analysts like BTIG's Jonathan Krinsky have pointed out that such aggressive moves rarely end well for investors.

"When something goes parabolic like this, you typically don't see the move end by going sideways. Typically, once you hit the final peak, the reversal tends to be an equal and opposite move to retrace the parabolic advance," Krinsky told MarketWatch during a Tuesday interview.

To help drive his point home, Krinsky cited several recent examples: Silver prices soared in January, before a punishing selloff saw the white metal retrace nearly all of its year-to-date gains. And in just over the past five sessions, shares of Avis Budget Group (CAR) retraced 94% of the 390% rally over the previous 14 sessions in April.

Technicals surrounding semis performance are looking very stretched at the moment. However, analysts who spoke with MarketWatch insisted that the fundamental bull case for chip stocks remains extremely compelling.

That is notable. On Tuesday, a report by the Wall Street Journal about OpenAI missing some of its revenue and user-growth targets last year appeared to send a shudder through the semiconductor space. The PHLX Semiconductor Index SOX fell by more than 3% on Tuesday, its biggest drop since March 30, FactSet data showed.

But as long as the hyperscalers continue to pour billions of dollars into building new data centers to power AI, demand for chips should remain robust. Furthermore, AI isn't the only investment theme worth noting. The electrification of the U.S. power grid, plus the increasing adoption of electric vehicles globally, are two more examples.

"We don't know what the ultimate ecosystem looks like, but AI should deliver astounding productivity at some point," Kim Caughey Forrest, founder and chief investment officer at Bokeh Capital Partners, told MarketWatch.

Forrest said she believes this could help to keep a floor under semiconductor names, even if investors don't yet know which companies will be the biggest winners from the AI buildout. The space has already delivered some serious surprises over the past few months. One year ago, who would have guessed that stodgy Intel (INTC) would be outperforming high-flying Nvidia (NVDA) in 2026?

Whether investors should sell semis, or not, has become a "trillion-dollar question" for the market, said Daniel O'Regan, a managing director at Mizuho Americas, in commentary shared with MarketWatch late last week. O'Regan said it has become a particularly common question from clients.

While it might be tempting to take profits, O'Regan said the outlook probably isn't that simple, given that dip buyers could quickly jump back in at the first opportunity to buy lower.

"The prevailing dynamic is that any dip eventually gets bought," O'Regan said in written commentary.

If semis pull back here, it could have a big impact on major equity indexes like the S&P 500. The total market capitalization of all the SOX components was $13.25 trillion as of Tuesday's closing prices, which is 20.4% of the total market cap of the S&P 500 companies of $65 trillion.

Gains for semis have largely helped propel major indexes higher over the past month. They're a huge reason why the Nasdaq Composite COMP is on track in April for its biggest monthly gain in six years.

Should you trim your exposure to the space? Here are a few charts that could help readers decide.

Chip bulls left stranded on an island

The pullback may only be in its second day, but the bearish technical patterns that have appeared suggest the impact may have a lasting effect.

After Friday's leap to a record high, there was the "bearish engulfing" on Monday, as the iShares Semiconductor ETF SOXX, which aims to track the SOX index, opened above Friday's close, only to reverse course and close below Friday's opening price. The fact that bears, after absorbing the bulls' best shot, were able launch such a successful counterattack suggests they have snatched the momentum.

Things got even worse for bears on Tuesday, as the SOXX created a true-gap lower, meaning it opened below the previous session's intraday low to leave a blank space in the chart. That came two days after the SOXX had produced a bullish true-gap, as it opened on Friday above Thursday's intraday high.

That leaves a two-day period at a significant high that is separated by gaps, a pattern known as an "island reversal." It means that those who bought aggressively on Friday have been stuck with losses, and might be more apt to sell.

Earnings estimates keep climbing

Much of the bull argument for semiconductor stocks rests on the fact that Wall Street analysts have been aggressively raising their earnings-per-share forecasts for the space. The aggregate consensus earnings-per-share forecast for members of the SOX index topped $376 late last week, FactSet data showed.

While technicals can exert heavy influence over the short term, fundamental factors like earnings growth often decide the long-term trajectory of a stock.

Longest winning streak on record

On Friday, the SOX tallied an 18th-straight day in the green. That was the index's longest winning streak on record, Dow Jones Market Data showed.

Other similarly lengthy winning streaks within the broader technology space have preceded big drawdowns over the past year. BTIG's Krinsky likened this latest example to the 20-day win streak Meta Platform's stock (META) saw that ended on Feb. 14, 2025.

During that time, the stock rose by 20.5%. Although Meta's fundamentals were "great," Krinsky noted that when this streak ended, shares of the social-media giant tumbled 34% over the next five weeks.

Echoes of the dot-com bubble peak

Even with the two-day pullback of 4.5% that SOX has seen so far this week, the index is still up 32.3% in April. That puts it on track for the best one-month performance since the record 50.4% rally in February 2000, which was the month before the dot-com bubble started to deflate.

   February 2000                                                                              50.4% 
   April 2026*                                                                                32.8% 
   November 1996                                                                             27.17% 
   January 2001                                                                                 27% 
   November 2002                                                                              26.6% 
   June 1999                                                                                  24.8% 
   Source: FactSet, Dow Jones Market Data, numbers for April 2026 are preliminary* 

That direct comparison with the dot-com bubble peak probably won't help to put investors' minds at ease, Krinsky told MarketWatch.

In another reference to the dot-com bubble days, the SOX on Friday reached a peak of 48.3% above its 200-day moving average. The 200-DMA is a closely watched indicator that many on Wall Street use as a long-term trend tracker.

Investors haven't seen SOX trade this far above its 200-day moving average since shortly after the dot-com bubble peaked in the summer of 2000. Although, at the height of the bubble, the index was trading at a much larger premium to the popular moving average.

Finally, the SOX index gained 47.2% during the 18 trading days through Friday, which coincided with the record winning streak. That was the largest 18-day percentage-point move since the 52.3% gain that ended on Nov. 4, 2002.

According to Krinsky, moves of this magnitude typically occur at the end of a bear market, or near the peak of a bull market.

"I don't think we can say we're just coming out of a bear market here," he said.

Ken Jimenez and Michael DeStefano contributed

-Joseph Adinolfi -Tomi Kilgore

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04-28-26 1752ET