Chip Stocks Are The Most Overbought Since The Dot Com Bubble, But Markets Are Still Piling In

• Inflows into SOXL are now 6 times larger than inflows into ProShares UltraPro QQQ (TQQQ), as per the market commentator. 
• Meanwhile, Chicago-based financial technology company Barchart has said that semiconductor stocks are now the most overbought since the peak of the dot-com bubble.
• However, Vivek Arya of BofA Securities told CNBC that, despite fears of an AI-driven bubble, many of the largest semiconductor stocks are still trading at below-market multiples.

The semiconductor rally is entering historic territory, and the market is piling in aggressively despite signs that the sector may be severely overbought.

The Direxion Daily Semiconductor Bull 3X Shares (SOXL), a 3x leveraged semiconductor exchange-traded fund, attracted a record inflow of more than $1.03 billion on Tuesday, according to The Kobeissi Letter.

In a post on X, the market commentator noted the inflow while highlighting that the bearish Direxion Daily Semiconductor Bear 3X Shares (SOXS) had posted $230 million in outflows, the largest daily outflow since late March.

“The run in semiconductor stocks is truly historic,” The Kobeissi Letter said.

The Chip Rally In Context

The SOXL is up more than 354% since its bottom in March, the largest 31-day increase since the fund launched, The Kobeissi Letter has noted. Meanwhile, inflows into SOXL are now 6 times larger than inflows into ProShares UltraPro QQQ (TQQQ), the 3x leveraged ETF linked to the Nasdaq 100 Index, indicating just how concentrated the bullish bets in semiconductors are, it said.

While the move reflects the market’s optimism that the semiconductor rally is far from over, some market analysts are sounding valuation concerns.

“Semiconductor valuations are at EXTREME levels,” financial research platform Global Markets Investor said on X. “The Philadelphia Semiconductor Index, $SOX, is trading at a price-to-sales ratio of ~9, more than 4 times the level seen in 2013.”

In an earlier post, The Kobeissi Letter had noted how the SOX now accounts for a record 23% of the S&P 500’s market cap, which has doubled in the past two years.

Meanwhile, Chicago-based financial technology company Barchart posted a chart of SOX on X, adding, “Semiconductor Stocks are now the most overbought since the peak of the Dot Com Bubble.”

Wall Street’s Divided Stance

Vivek Arya, BofA Securities senior semiconductors analyst, told CNBC in an interview that despite fears of an AI-driven bubble, many of the largest semiconductor stocks are still “trading below market multiples” because their earnings growth is accelerating faster than share prices.

Arya said the current rally is being driven by real demand from hyperscalers, enterprises, and governments investing heavily in AI infrastructure, rather than pure speculation.

However, “The Big Short” investor Michael Burry has long maintained a bearish stance on the sector, and recently said that the sector’s momentum resembles a technical melt-up rather than a sustainable fundamental move. Burry has consistently taken bearish positions against semiconductor ETFs, and reiterated that the SOX “will return to earth.”

Burry has also said that he expects a complete reversal of the Nasdaq 100 index from its current levels. “This, all of it, is the scene of the bloody car crash, minutes before it happens,” Burry said.

SOXL has surged more than 342% this year alone, while TQQQ has gained 50%. The SOXS has declined more than 86% in the same time.

Meanwhile, on Stocktwits, retail sentiment around all three was in the ‘bullish’ territory at the time of writing.

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