These Chip Stocks Are Ignoring the “AI Slowdown” Fear

 

In This Digest: 

• 16 chip stocks just lit up the same breakout screen – here’s our favorite 

• Banks have gotten crushed by AI fears, but Jeff Clark sees an imminent reversal 

• The Dow shifts into the Yellow Zone – keep an eye on risk 

The AI “slowdown” story was supposed to sink the chip trade… 

On Sept. 12, Anthropic CEO Dario Amodei published an essay called “We Must Pace the Frontier” – warning the whole AI industry to slow down.  

His fear was recursive self‑improvement: AI models building smarter AI models faster than our ability to keep up with them.  

And the heads of OpenAI, xAI, and Google’s DeepMind said they agreed.  

Wall Street took that as a reason to sell chip stocks. The Monday after Amodei made his warnings, the VanEck Semiconductor ETF (SMH) dropped 4.8%. 

Semiconductors are considered the beating heart of the AI trade. They power AI data centers that run chatbots like OpenAI’s ChatGPT, Anthropic’s Claude, and Google’s Gemini.  

We didn’t buy the panic. 

On Sept. 14, we showed you how our data still skewed bullish on chip stocks.  

SMH was still in its Long-Term Health Yellow Zone. That’s a warning sign based on how well the stock is trading compared to its past. And it can signal a coming trend shift.  

But it’s not a sell signal. That’s reserved for Red Zone entries, which show that a bullish trend has broken down. 

And today, SMH is back in a Green Zone, meaning it’s a buy.  

Had you taken our advice last month and stayed in this trade, you’d have made the right move. Since our bullish call, SMH is up 13%.  

And some chip stocks are screaming buys right now… 

That’s according to the emerging trend screen we run each morning. 

It looks for stocks with strong fundamentals according to our Quantum Score that are hitting one‑month highs.  

And yesterday, 16 chip and chip equipment stocks lit up at once. They include: 

• Lam Research (LRCX), which makes the machines that carve circuits into silicon wafers.  

• KLA Corp. (KLAC), whose tools catch tiny defects before chips leave the factory.  

• ASML (ASML), the Dutch company that builds the massive machines used to print chip designs onto wafers. 

That tells us this is a trend worth watching. Then we can dig deeper using the Quantum Score for standout stocks benefiting from this trend. 

And near the top of the list right now is Teradyne (TER). It makes the equipment that tests chips to make sure they work before they ship. Teradyne has a Quantum Score of 91.1. That’s among the highest in the cluster of stocks hitting one-month highs.

Add TER to your watchlist today, and consider buying it before the chip stocks group pushes into new highs.  

Our data points to a bottom in financials stocks… 

And on Sept. 24, I showed you how Meta’s new AI agent, Muse, had touched off a second wave of AI disruption panic – this one aimed at financials instead of software like we saw earlier in the year.  

The State Street Financial Select Sector SPDR ETF (XLF) had fallen more than 4% since Muse launched on Sept. 8. Insurer Allstate was down 11% in five trading days.  

Big banks and brokerages – JPMorgan, Wells Fargo, Charles Schwab – were all sliding on fears that an AI agent could shop your insurance and manage your money better than the companies charging you for it. 

But our master options trader, Jeff Clark, says financials are about to bottom.  

Writing in our Market Minute e-letter yesterday, he noted that the number of bank stocks trading in bullish technical patterns was reaching an oversold extreme. 

A similar condition preceded a 16% rally in the KBW Bank Index back in March.  

It hasn’t turned higher yet, but the setup looks the same. 

That got me rooting around for oversold opportunities in the financials sector. And I found one in Jeff’s Divergence screen. 

This tool finds stocks that are in either a powerful uptrend or downtrend, where trend lines have pulled unusually far apart like a stretched rubber band. 

Stocks like these are vulnerable to a sharp rebound when a trend shifts – they’re so oversold that when buyers step in, the price can explode upward.  

I found an interesting result for insurance broker Aon (AON), one of the most stretched names in the market. Take a look:

As you can see, the three moving averages that make up Jeff’s Divergence screen are all stretched apart – indicating a strong trend.  

AON has dropped about 27% in just two months since it peaked on July 28.  

The underlying business, meanwhile, hasn’t missed a step. Organic revenue growth grew 5% last quarter, margins expanded, and free‑cash flow nearly quadrupled year over year – and the company raised its dividend 10%.  

Aon brokers risk for corporations, not individual shoppers comparing quotes on an app, which makes it an odd target for an AI‑agent panic built on consumer switching. 

Add AON to your watchlist now. And for more clues as to when the financials sector has hit its bottom, make sure to sign up for Jeff Clark’s free e-letter to follow along.  

Finally, a warning on the Dow… 

Every day I monitor the TradeSmith Finance Health dashboard for a broad read on how markets are trading. 

And just yesterday, a notable warning popped up in one of the market’s oldest stock index – the Dow Jones Industrial Average. 

It entered the Long-Term Health Yellow Zone – meaning it’s in a warning zone, halfway from its recent high to its risk-off Red Zone level around 49,000.  

The Dow joins a chorus of other notable Yellow Zones across major indexes over the past week – including the mid-cap S&P 400 and small-cap S&P 600. 

These are all just warning zones – stocks can and have recovered from these levels. But consider this an early warning sign that the market is hitting a bumpy patch. 

To building wealth beyond measure, 

Michael Salvatore 

Editor, TradeSmith Daily 

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