In this piece, we will look at the top ten long semiconductor stock positions among institutional investors according to Jefferies.

Semiconductor stocks are among the most dynamic ones that you’ll find on Wall Street. Since the start of the coronavirus pandemic in 2020, chip stocks have seen it all. Nowhere is it clearer than in the performance of the Philadelphia Stock Exchange’s well-known index of semiconductor stocks, which is one of the most widely used benchmarks for the sector’s performance.

The index opened 2020 at 1825.59 points and by February 18th, or two days before the coronavirus stock market crash started, the semiconductor stock index had gained 3.5% to close at 1891.05. Then, as markets began to crash, between the 18th of February and the bottom on March 26th, the index had bled one-third of its value or 31% to close at 1298.54 points. During the same period, the flagship S&P index had also lost 31%, so both indexes mirrored each other, which was unsurprising as semiconductor stocks are in no way defensive stocks that hedge their losses during economic turmoil.

Following the drop, both the S&P and the semiconductor stock index changed direction. As interest rates dropped to historic lows, money flew into the stock market and semiconductor stocks in particular soared as the demand for personal computing products boomed because of work-at-home mandates and lockdowns. Between the March 2020 bottom and January 10th, 2022, the flagship S&P and the semiconductor index gained 102% and 200% respectively. As you can see, the soaring demand meant that chip stocks delivered 2x the returns of the benchmark index.

After a crash and a rise, these two paradigm shifts took place in less than two years. To complete the cycle, semiconductor stocks were in for another crash – and then another rise. 2022 was the year of interest rate hikes as the Federal Reserve unleashed monetary policy tightening via multiple 75 basis point hikes to try to tamp down inflation. For chip stocks, this meant that consumer budgets were suddenly squeezed and data center spending before the AI era ground to a halt. This was evident in the annual filing of the world’s largest data center CPU company, which now tops our list of the 10 Worst Performing NASDAQ Stocks in 2024.

In its filing, the firm–whose Data Center and AI (DCAI) revenue dropped by 15% to sit at $19.1 billion and led to a whopping 73% annual operating income drop–shared “DCAI server volume decreased, led by enterprise customers, and due to customers tempering purchases to reduce existing inventories in a softening data center market.”

So, as firms struggled with a “softening data center market” and struggling consumer behavior, the semiconductor stock index dropped by 44% between January 10th, 2022, and the bottom on October 10th, 2022. In short, this meant that the index trimmed down its returns to 66% from the March 2020 bottom.

But as fate would have it–in less than two months from the October bottom–OpenAI would make it ChatGPT chatbot publicly available. ChatGPT was released in late November 2022, and from the start of 2023 to today, the semiconductor stock index has gained 102% and far surpassed its peak before the interest rate hiking cycle. This shows how dynamic the semiconductor industry is, and since the coronavirus bottom, it has gained a whopping 301%.

However, not all semiconductor stocks are equal. As we covered in detail as part of Goldman Sachs’ Best Phase 2 AI Stocks: Top 24 High Conviction AI Stocks, the paradigm around AI stocks and AI semiconductor stocks appears to be shifting. So far since the launch of ChatGPT, only one chip stock has led the semiconductor space in terms of share price gains. This is the only Phase 1 stock in Goldman’s list, and since the launch of ChatGPT, post-split, the stock is up by 717%. However, since its peak in June, the shares have gained just 1.78%, after having dipped by 27% between June 18th and the first week of August. Wall Street is now in waiting mode, as investors are eager for the upcoming earnings to see how good margins are and whether firms that are buying GPUs are able to generate profits from their investments.

Ahead of the third quarter earnings season, Jefferies released its Trading Positioning Survey in October. This analyzed institutional investor holdings in semiconductor stocks ahead of the earnings season. The results were rather striking. Jefferies’ July survey revealed that 60% were overweight on semiconductor stocks, but this percentage dropped by 18 points to 42% in October. The latest survey analyzed investor positions between September 30th and October 11th, and it also revealed that the investors who were underweight on semiconductor stocks had grown by 5 percentage points to 16% from July’s readings.

So, as AI semiconductor investing enters Phase 2 as per Goldman Sachs and Jefferies shared interesting insights, we decided to see which semiconductor stocks institutional investors are long on.

Our Methodology

To make our list of Jefferies’ top overcrowded semiconductor long positions, we ranked the top ten crowded long positions from the latest Trading Positioning Survey by their shares short as a percentage of outstanding shares.

For these stocks, we also mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

10. Advanced Micro Devices, Inc. (NASDAQ:AMD)

Number of Hedge Fund Holders In Q2 2024: 108

Shares Short % Of Outstanding: 2.76%

Advanced Micro Devices, Inc. (NASDAQ:AMD) is a semiconductor designer that sells CPUs and GPUs. Its products are used in a variety of applications, such as data centers, AI computers, personal computers, and gaming consoles. Advanced Micro Devices, Inc. (NASDAQ:AMD) is the only company that simultaneously competes with Intel in the CPU market and NVIDIA in the GPU and AI accelerator market. Consequently, it enjoys the benefit of having depth in its chip portfolio by offering a lower-priced option to both its competitors’ customers. Advanced Micro Devices, Inc. (NASDAQ:AMD)’s shares have been one of the best performing on the market recently as they are up by 854% since mid-2018. This has been on the back of its ability to secure market share from Intel, and the firm could see additional tailwinds if AI demand sticks and businesses turn towards diversifying their chips away from NVIDIA.

Baron Funds mentioned Advanced Micro Devices, Inc. (NASDAQ:AMD) in its Q2 2024 investor letter. Here is what the fund said:

“Advanced Micro Devices, Inc. (AMD) is a global fabless semiconductor company focusing on high performance computing technology, software, and products including CPUs, 9 GPUs, FPGAs, 10 and others. Shares of AMD remain volatile, and after a strong run earlier in the year, the stock fell during the quarter as investors continue to wrestle with AMD’s competitive positioning in the AI compute market relative to NVIDIA, who continues to strengthen its full-system solution offerings at a rapid pace. AMD also updated its MI300 GPU chip revenue expectations for the full year to “greater than $4 billion” vs. prior $3.5 billion, which disappointed the market a bit relative to high expectations. Over the long-term, we believe AMD, with its unique chiplet-based architecture and open-source software ecosystem, will play a meaningful role in the rapidly growing AI compute market, where customers don’t want to be locked into a single vendor and AMD offers a compelling total-cost-of-ownership proposition, especially in inferencing workloads. Simultaneously, we believe AMD will continue to take share from Intel within traditional data center CPUs, which, while now a slower growth market, is likely to see a near-term refresh as data centers look for ways to improve energy efficiency and optimize existing footprints.”

9. QUALCOMM Incorporated (NASDAQ:QCOM)

Number of Hedge Fund Holders In Q2 2024: 100

Shares Short % Of Outstanding: 2.30%

QUALCOMM Incorporated (NASDAQ:QCOM) is one of the largest semiconductor companies in the world. It has a diversified portfolio of semiconductor products that serve the needs of the smartphone, IoT, and automotive industries. Additionally, QUALCOMM Incorporated (NASDAQ:QCOM) also enjoys somewhat of a diversified business model as it also earns licensing revenue from the chips that it has already sold. However, as of the nine months ending in June 2024, 84% of QUALCOMM Incorporated’s (NASDAQ:QCOM) revenue came from equipment sales which means that the firm is at the mercy of the global consumer technology industry and consumer spending. Additionally, within the firm’s $24.5 billion in equipment and services revenue, $18.8 billion is from handset sales. This makes it unsurprising that QUALCOMM Incorporated’s (NASDAQ:QCOM) shares are up by a modest 23.50% year to date despite the tailwinds enjoyed by semiconductor stocks in the AI era. A sustained recovery in the global smartphone industry could see the firm experience more tailwinds.

Aristotle Capital Management mentioned QUALCOMM Incorporated (NASDAQ:QCOM) in its Q2 2024 investor letter. Here is what the fund said:

“Qualcomm, a leading wireless communications technology company, was the largest contributor for the quarter. After a period of weaker global demand for smartphones (driven by a slowdown in China) and elevated channel inventory, demand from Chinese handset manufacturers accelerated 40% year‐over‐year. More importantly, in our opinion, Qualcomm continues to execute on a previously identified catalyst of shifting its business mix beyond smartphones. The company announced increased progress for its automotive and Internet of Things (IoT) solutions. Within auto, the increase in vehicle content has resulted in 35% year‐over‐year revenue growth, with a design win pipeline of ~$45 billion, keeping the company on track to achieving ~$4 billion in auto‐related revenues by 2026. In recent years, despite persistent threats of insourcing from large clients (most notably Apple), Qualcomm has been able to retain its high market share in handsets while simultaneously expanding in non‐smartphone devices. We believe this progress is a testament to Qualcomm’s history of high (and productive) R&D spending, resulting in technological superiority. We believe Qualcomm’s technologies will continue to benefit as the world stays on a path toward a proliferation of connectivity between varying devices and as AI applications extend from the cloud to on‐device.”