The U.S. semiconductor index ended its 18-day winning streak, but with a price-to-earnings ratio of 60 times, it is still pricing in perfection, forcing investors to buy due to the market trend.
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Analysis points out that the recent US stock market trend has shifted from proactive driving to forced short squeeze, which is especially evident in SOX. Funds are chasing the rally, positions are being rebuilt, and systematic buying is once again dominating the market. This temporarily extends the upside. But the more forced it is, the more fragile it becomes.
The expected vertical surge, SOX earnings forecasts are not just being revised upward, but are chasing the stock price higher.
In terms of SOX valuation, it has reached a price-to-earnings ratio of 60 times. Such a high valuation is a premium paid for perfection.
The market has already shifted from overly hedging left-tail risks to chasing right-tail opportunities. This month, the volatility of the S&P 500/Nasdaq on up days is nearly three times that on down days. According to McElligott, since positions are still light, the market continues to force investors to chase upside options.
Leverage is amplifying the effect. In the past month, leveraged ETF rebalancing contributed about $86 billion of buying, concentrated in semiconductors, technology, and MAG, further strengthening the short squeeze trend.
As US stocks hit new highs, new buyers emerge. In Q1, the incremental stock buyback authorizations of S&P 500 constituent companies ranked as the seventh largest in the past nine years, coinciding with the period of stock price weakness in March. Jefferies sees this as a positive signal for the stock market: "Even though the index has returned to historic highs, new buyers can still enter."
However, attention needs to be paid to the current market’s right-tail fragility. If the index rises another 2% to 4%, market makers will enter an aggressive Short Gamma zone. That is, market makers' hedging will shift from "stabilizer" to "accelerator"—when prices go up they chase buying, when prices drop they're forced to sell, thus amplifying volatility. The rally itself is sowing the seeds for the next disorderly fluctuation.
CTA has come to a pause. The speed at which CTAs rebuild long positions is almost as fast as their previous unwinding, and has now recovered to about 75% of pre-Middle East conflict positions. Positions have stabilized near $111 billion, and short-term high volatility limits further room for increasing positions. Recent flows have calmed; Goldman Sachs estimates next week’s net global buying at around $1.5 billion.
Last week, the total leverage ratio of US long-short funds fell by 4.6 percentage points, and US stocks experienced the largest nominal deleveraging in seven months (since September 2025), mainly driven by liquidation of individual stock risk positions. Nine of the eleven sectors recorded net selling.
This week is quite critical: ultra-large cloud vendors will report earnings collectively, alongside the Fed FOMC meeting. Analysis suggests that if capital expenditure falls short of expectations, it will suppress the semiconductor sector; if it stays high, it may trigger market skepticism. Given that the market cap of these cloud vendors already exceeds the entire SOX sector, they have the ability to put a cap on this rally.
This is not about predicting a top, but it is exactly when Convexity value matters—buying convexity protection at minimal cost:
For example, for the semiconductor-tracking ETF SMH, the May 480/430 put spread currently has a max payoff of about 6.25 times, and the lower strike corresponds to the price level from just 11 trading days ago.
Additionally, it's worth noting that SOX needs silver. AI's demand for silver is currently still limited, possibly only a low single-digit percentage of total demand. But it is the fastest-growing source—AI servers consume significantly more silver than traditional hardware. More crucially, cost is not a limiting factor. Silver’s share in total system spending is tiny, making AI a strong marginal buyer.
AI is not the largest buyer of silver, but it is the buyer that doesn’t care about price at all.
Some analysis points out that the valuation gap between SOX and silver is huge. Compared to chasing SOX at a 60 times P/E, pursuing silver's convex upside seems more attractive.
Risk Warning and DisclaimerThe market has risks, investment requires caution. This article does not constitute personal investment advice and has not taken into account the specific investment objectives, financial situation, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are suitable for their own situation. Investments made accordingly are at your own risk. ```