To The Moon

Over the past decade, semiconductor stocks have been the star performers in the U.S. market. Yet, many investors are scared off by their volatility. But if you're in it for the long haul—like five years or more—ignoring U.S. chip stocks could cost you some serious gains. After all, the rise of AI means more and more devices are using chips every year.

In fact, now might be the perfect time to dive into U.S. semiconductor stocks. Here’s why:

1. The reasons for the Q3 drop? Not a big deal

While the overall market ticked up a bit in Q3, chip stocks didn’t follow. $VanEck Semiconductor ETF(SMH)$ , which tracks the top 26 companies in the sector, dropped 5.4%, and it's down 11.5% from its mid-July peak.

There are several reasons for the dip, but none of them really change the long-term outlook for the sector. Semiconductor stocks had a monster run earlier this year, especially $NVIDIA Corp(NVDA)$ , the largest holding in SMH. So, a pullback? Pretty much expected—people are looking for excuses to take profits.

For instance, July’s weak jobs report spooked investors about a possible recession. Then, when big cloud infrastructure players reported earnings, AI skeptics dumped chip stocks, saying revenue and profit growth didn’t justify the massive investments in chip production. And on top of that, demand for non-AI chips used in PCs, smartphones, and EVs has been sluggish.

But by the end of Q3, the U.S. started posting better economic data. Job growth rebounded after the July scare, and inflation is getting close to the Fed’s 2% target. And on September 18, the Fed cut rates by 50 basis points—more than some expected. This should boost consumer spending on big-ticket items like cars and ease pressure on business budgets.

Meanwhile, nearly every tech executive is hyped about AI. The “Big Seven” U.S. tech giants are all predicting more AI investments and saying they’re already seeing early returns, with more growth on the horizon.

2. Micron beat expectations

At the end of September, $Micron Technology(MU)$ reported better-than-expected earnings for its fourth quarter. Like other chip stocks, Micron had tumbled nearly 50% from its June high, but it bounced back hard after the earnings release. Micron’s results are a solid indicator of the chip market’s health.

Demand for Micron’s high-bandwidth memory (HBM), used in AI data centers, is still strong. In fact, the company says its entire HBM capacity for 2025 is already sold out. AI-driven PCs and smartphones are set to boost non-server DRAM demand next year. And after a prolonged slump in the PC and smartphone markets, there’s a good chance we’ll see a strong rebound in 2025.

Micron’s management is calling for “record-breaking revenue” in 2025, along with significantly improved profits.

3. China’s massive stimulus policies

Last week, China rolled out a huge economic stimulus package, and policymakers say there’s more fiscal support coming.

China’s economy is crucial to the chip market since its massive population gobbles up more than half of the world’s chips, especially for smartphones, PCs, and non-AI servers. Plus, China’s clean energy sector is booming, with 80% of the world’s solar panels being produced there. In July, sales of electric and hybrid vehicles in China hit 50.7% of new car sales, overtaking traditional gas-powered cars for the first time.

After a tough few years post-pandemic, China’s economy has struggled. But now, it seems like they’re getting serious about reviving growth. That’s great news for chip stocks. If things pick up, it’ll be another tailwind for the semiconductor industry next year.

So, while the short-term might be bumpy, the long-term outlook for U.S. semiconductor stocks? Still looking solid.