Key Takeaways:
Bank of America's June fund manager survey reveals that the sustained climb in semiconductor stocks is making investors nervous, with strategist Michael Hartnett predicting some profit-taking over the summer months even as most managers remain reluctant to reduce exposure.
The PHLX Semiconductor Index's surge — the Invesco PHLX Semiconductor ETF (SOXQ) has gained 89 percent this year and 157 percent over the past 12 months — has pushed fund managers into what BofA describes as a "fear of heights" position on the sector, according to the bank's monthly survey published Tuesday.
"The chip index's climb is giving fund managers a fear of heights," Michael Hartnett, chief investment strategist at Bank of America, said in the report. He expects some chips to be taken off the table over the quieter summer months ahead, even as inflation concerns and uncertainty around the direction of Federal Reserve policy under Kevin Warsh persist.
The semiconductor sector has been the dominant driver of equity returns in 2026, with the SOXQ ETF returning 335 percent over five years, an annualized 32 percent. Top holdings including NVIDIA Corp., Broadcom Inc., Advanced Micro Devices Inc., Micron Technology Inc. and ASML Holding NV have benefited from hyperscaler capital expenditure that continues to break records, with the industry projected to clear $1.3 trillion in annual revenue this year.
Why fund managers are torn
The tension in the survey reflects a broader dilemma facing institutional investors: the semiconductor trade has been extraordinarily profitable, but valuations leave little room for error. The SOXQ's top 10 names carry 59 percent of assets, making the fund effectively a leveraged bet on a handful of companies selling into the data center buildout by Microsoft Corp., Amazon.com Inc. and Alphabet Inc.
At the same time, the non-AI side of the semiconductor sector — autos, industrial and consumer chips — has been sluggish even as data center logic chips boom. Memory pricing, a key driver of the current upcycle, has historically been the most volatile segment in semiconductors, with Taiwan's memory and other manufacturing segment up 152 percent year on year in the first quarter.
Geopolitical risks add another layer. NVIDIA's $8 billion revenue drag from China export restrictions, disclosed in its most recent filing, is a reminder that policy can erase a quarter of demand with a single memo.
What comes next
Hartnett's call for summer profit-taking does not imply a crash but rather consolidation. The survey showed fund managers remain broadly overweight equities, with cash allocations still below historical averages. Any rotation out of semiconductors would likely flow into more defensive sectors, potentially triggering a near-term pullback in chip stocks and the broader Nasdaq Composite.
The next catalyst for the sector comes in late July when the major hyperscalers report quarterly earnings, offering the first clear read on whether the capex cycle is accelerating or peaking. Until then, the "fear of heights" signal from BofA's survey suggests the path of least resistance for semiconductors may be sideways to lower.
This article is for informational purposes only and does not constitute investment advice.
