The semiconductor sector, long a leader in market performance, has faced headwinds in recent months. After an impressive run last year and through much of 2024, the industry took a sharp hit in July as expectations for a Federal Reserve rate cut grew, and the now infamous Japan carry trade unwind played out. This led to investors rotating into more defensive areas of the market.

The popular VanEck Semiconductor ETF (NASDAQ: SMH), a benchmark for the sector, plunged from its all-time high of over $280, falling toward crucial support at $200 in just one month. This abrupt selloff ignited fears of deeper losses and prompted a shift into safer sectors like Utilities and Industrials.

Yet fast forward two months, and the picture looks brighter for semiconductors. The SMH ETF has stabilized above critical rising moving averages and pared losses, now sitting just 13.6% below its peak. The ETF has formed a bullish technical setup, posting two consecutive higher lows and consolidating around the $250 level—close to a potential breakout zone. This turnaround raises an important question: could rotation back into the semiconductor sector be starting?

To answer that, let’s look at the sector’s top holdings, which account for much of SMH's weight and drive the sector's performance. NVIDIA, Taiwan Semiconductor Manufacturing, and Broadcom together comprise nearly 43% of the ETF’s total weighting. 

Let's examine these key players' recent momentum and outlook to better assess whether the semiconductor sector is again positioned for upside.

NVIDIA Powers AI Revolution, Poised for Strong Growth

NVIDIA (NASDAQ: NVDA), the ETF’s largest holding, has been a standout performer and is currently consolidating after a strong rebound from its August lows. From a technical perspective, the stock is in a bullish pattern and hovers near a critical breakout level above $125.

Analysts remain overwhelmingly positive on NVIDIA, with a consensus price target suggesting a 16% upside from current levels. The stock is rated as a Moderate Buy by analysts, with 39 out of 43 analysts recommending it as a Buy. Notably, Rosenblatt analyst Hans Mosesmann holds a Street-high price target of $200, representing a 71% upside. Mosesmann is particularly bullish on NVIDIA's software, which he believes will significantly bolster the company’s sales mix and valuation over the next decade.

NVIDIA’s dominance in powering artificial intelligence (AI) models like ChatGPT is well-known. Still, upcoming products like the highly anticipated Blackwell AI chip are generating massive demand, according to CEO Jensen Huang.

TSM Set to Benefit From Rising Chip Demand and AI Growth

Taiwan Semiconductor Manufacturing (NYSE: TSM), the second-largest holding in SMH, is in a similar position to NVIDIA, consolidating in an uptrend and close to a potential breakout.

The stock popped over 2% recently as momentum continues to shift upward, with analysts forecasting an 11.4% upside from current levels.

TSM, as the primary chip manufacturer for NVIDIA, stands to benefit from the overwhelming demand for NVIDIA’s Blackwell chip. Additionally, the recent fundraising by OpenAI to boost its computing capacity will likely translate into more business for TSM, as OpenAI is expected to purchase chips from NVIDIA, and TSM will handle production.

Broadcom Joins Peers in Uptrend, Poised for Further Gains

Broadcom (NASDAQ: AVGO), SMH’s third-largest holding, mirrors the bullish trends seen in NVDA and TSM. The stock is showing signs of consolidation within a new uptrend, and analysts are forecasting a 10% upside.

Broadcom remains well-positioned as a critical player in the semiconductor supply chain, with significant exposure to both cloud computing and AI growth themes.

Like its peers, Broadcom enjoys strong analyst support, with a firm Buy rating and continued optimism around its future prospects.

Is the Rotation Back On?

The semiconductor sector appears to be on the verge of a potential comeback, with the SMH ETF stabilizing and key players like NVIDIA, TSM, and Broadcom positioned for further upside. Bullish technical setups and strong analyst sentiment for these stocks suggest that the sector could be ready to regain its leadership position in the market.