Chip ETF's Balancing Act: Record Outflows Meet Nvidia's Moment of Truth

Chip ETFs show mixed signals: outflows hit $2.1B, but leveraged bets surge. Nvidia earnings could trigger 5.4% move.

The semiconductor trade has rarely looked more contradictory. The VanEck Semiconductor UCITS ETF (IE00BMC38736) closed Tuesday at €89.49, up 1.7 percent, yet the fund sits roughly 20 percent below its 52-week high of €111.18 and beneath its 50-day moving average of €96.52. With an annualized 30-day volatility of 49 percent, the market is pricing in anything but calm.

That tension comes to a head Wednesday, when Nvidia reports quarterly earnings after the US bell. The consensus calls for revenue near $92.2 billion — growth of roughly 97 percent year over year — alongside earnings per share of $2.09. Options traders are bracing for a post-earnings move of about 5.4 percent, notably below the historical average of 7.4 percent, suggesting the market anticipates a more muted reaction this time around.

Money Flows Tell a Two-Sided Story

The outflows have been striking. The US-listed VanEck Semiconductor ETF (SMH) saw net redemptions of approximately $2.11 billion over five trading sessions, according to ETF Database. Investors appear to be rotating out of chip exposure and into broader technology funds such as the QQQ, a shift that ETF.com attributes to profit-taking after a powerful summer rally.

Yet speculative appetite hasn't vanished — it has simply moved elsewhere. South Korean retail investors purchased a net $713 million of SOXL, the triple-leveraged chip ETF, between August 17 and 24, marking the largest net purchase of any single US position during that stretch. Closer to home, REX Investments launched new triple-leveraged exchange traded notes in early August tied to an index construction referencing SMH, another signal that leveraged speculation in semiconductors remains alive even as conventional fund flows point the other way.

A Sector Caught Between Momentum and Caution

The European-domiciled fund, which tracks the MVIS US Listed Semiconductor 10% Capped ESG Index and holds €7.36 billion in assets at a total expense ratio of 0.35 percent, has given back 1.9 percent over the past 30 days. That pullback follows a period when the sector drew support from rising chip sales, an upward revision to chip-equipment spending forecasts roughly two weeks ago, and SK Hynix's approval of multibillion-dollar investments about a week before that. Since those catalysts faded, the ETF has shed around 4.3 percent.

Not every data point has been gloomy. Semtech delivered second-quarter results Tuesday that beat expectations handily, posting adjusted earnings of $0.71 per share on revenue of $341.9 million, up 32.7 percent year over year. The stock jumped about 5.5 percent, and guidance also topped consensus. AMD, meanwhile, received an upgrade from Raymond James, moving from "Outperform" to "Strong Buy."

Nvidia itself snapped a seven-session losing streak Tuesday, climbing roughly 2 percent to $213.05.

The Skeptics' Case

Not everyone is convinced the risk-reward favors chip bulls. A chip analyst cited by CNBC warned Tuesday that the semiconductor group could fall another 10 percent, a decline that would push the sector's relative valuation against the S&P 500 to levels not seen since ChatGPT's launch in late 2022.

Goldman Sachs strategist Tony Pasquariello flagged an unusual historical pattern: long positions in semiconductors and short positions in software have been behaving like a "photographic negative" of each other, a divergence his bank's prime brokerage data shows has rarely been so pronounced over a decade. JPMorgan technical strategist Jason Hunter added a more ominous comparison late last week, noting that the gap between strong AI hardware names and struggling hyperscalers such as Meta and Microsoft echoes the market setup before the dot-com bust of 1999/2000.

A Seeking Alpha assessment from August 12 characterized the US ETF as "fully valued" at a cyclical peak, with the largest index weights concentrated in stretched valuations. The analysis also suggested that future growth in capital expenditures among major cloud providers would increasingly be funded through debt rather than operating cash flow. That view is now two weeks old and no longer reflects a current analyst opinion, but it remains part of the context shaping investor caution.

What Comes Next

For the European fund, the immediate question is how Nvidia's numbers land. The stock's report will likely set the tone for the entire sector, and the fund's trajectory out of Wednesday's session hinges on whether the company meets expectations that have been built up over months of AI-driven enthusiasm.

The European ETF's 68 percent gain since the start of the year — even after the recent correction — underscores how extraordinary this cycle has been. Whether that momentum resumes or the skeptics gain the upper hand, the flows at SMH will serve as an early gauge of sentiment across the semiconductor complex in the days ahead.