The S&P tech sector has had a volatile year thanks to a selloff and recent comeback in social media, cloud and internet stocks, three sub-sectors in tech.
But one area—semiconductors—has been going strong. The Philadelphia Semiconductor Index is outpacing the gains in the broader markets, up 10 percent over the past two months and up 17.5 percent this year, as investors bet on rising demand for chips and improving market dynamics.
Now, some Wall Street analysts believe semiconductor stocks may be ready for a tumble.
Analysts at Goldman Sachs wrote: "In our view, semi stocks have clearly reached problematic territory not just in the levels but more importantly in the markets' willingness to overemphasize good news and ignore bad news."
Semiconductor stocks are the most overbought they've been since the tech bubble in 2000, said Jonathan Krinsky, MKM Partners Chief Market Technician.
Krinsky thinks the risk/reward of going long on semiconductor stocks is poor over the next one to two months.
"At a minimum there should be some consolidation," he told CNBC.
One catalyst that has been driving semiconductor stocks higher is the hope that stabilization in the PC market will sustain demand, say some experts.
But Pacific Crest Securities earlier this week downgraded shares of two semiconductors—Advanced Micro Devices and Nvidia—to underperform, citing weak PC demand. Analyst Michael McConnell wrote that a recent Asia trip showed him that "all may not be as peachy as it seems in PC land."
"While consumer notebook sales show signs of stabilization, motherboard manufacturers note that weak consumer demand and excess inventory will drive unit sales unseasonably down 5-10 percent quarter-over-quarter in the third quarter, despite strong corporate demand," McConnell wrote.