The Dow is outperforming semiconductors. But it’s not just the DeepSeek case
The Philadelphia Semiconductor Index (SOX) is a market capitalisation-weighted index of 30 companies active in the semiconductor industry. Due to the importance of its constituent stocks, it is considered an industry benchmark. For this reason, it is interesting to assess its performance and strength relative to the major US stock indices.
The SOX is experiencing a period of intense pressure. At the end of January 2025, while most of Wall Street’s major indices were in positive territory, the SOX index recorded a negative performance of -1.2%. Among the reasons for this trend is also the DeepSeek affair, but for many analysts the explanation is deeper; and this is shown by the sideways phase that has been affecting the index since late last summer and that has put a halt to the long bullish trend that began in 2023.
What is this explanation? The fundamental point is always that of profits. According to many analyses, the margins for improvement in the semiconductor industry are narrowing and investors are shifting their interest from companies that generate new technologies to companies that will exploit new technologies. If an increasingly competitive environment reduces the profit margins of those who create chips, the same scenario broadens the business prospects (and profits) of those who use the technologies to produce products and services.
A confirmation of this can be found by analysing the trend in the relative strength index between the SOX and the First Trust Nasdaq Artificial Intelligence and Robotics ETF (an ETF that invests in companies that develop and use artificial intelligence and robotics, mainly excluding semiconductors). The indicator is depicted in the chart above and shows the trend reversal.
In the graph above we can see the trend in the strength ratio between the SOX index and the NASDAQ. We can clearly see the weakening trend that started in July last year. Also clearly visible is the nosedive at the end of January, the result of the DeepSeek announcement.
But the SOX index also loses strength against the Dow Jones. We observe above how the trend in the strength ratio reversed at the beginning of last summer and is now proceeding in a quasi-lateralisation phase.
