Chips Up 20% in 3 Months, Further Upside Limited?

Strength in the chip sector led the market higher on Thursday, with investors betting that a slew of new gadgets such as tablet computers will drive a revolution in the way we use technology.

The SMH, whose top holdings include Intel , Texas Instruments and Applied Materials has been on fire since December, gaining over 20% in only three months.

Can there possibly be more upside? How should you position now?

Instant Insights with the Fast Money traders

Joe Terranova does think there’s room to run though he concedes, “valuations look stretched.” However, he thinks the trade right now is all about momentum and “momentum is to the upside. I’d stay with it and raise my stops,” he counsels.

Tim Seymour feels the same. “I also think there’s room to go, especially in the big cap chip names because they’ve lagged the high fliers,” he adds. “I think they play catch up.”

Guy Adami is also on board. “The story has worked and I expect it to continue working,” he tells the desk. “But considering the run, I’d also wait for a pullback.”

Jon Najarian is bullish on fundamentals. “People around the world want technology,” he reminds. “I just see demand rising for smartphones and tablets for a long time to come.”

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AMAZING TURNAROUND: NVIDIA!

The surge in chip names included NVIDIA, which reported lackluster earnings earlier in the week. The sharp move higher flies in the face of a downgrade at Citi.

Analyst Glen Yeung cut his rating on the stock to Hold from Buy writing that Nvidia faces “increased competitive risk,” and “the threat of excess tablet inventory may constrain multiples near-term and balances the risk-reward for the shares.”

Bad timing?

In a live interview on Fast Money Yeung tells us he doesn't regret the call one bit. With the stock up 10% on Thursday he says, "I think there’s even more conviction that the stock is range bound."

Get all the details. Watch the video above!

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Trader disclosure: On Feb 17, 2011, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Seymour Owns (AAPL); Seymour Owns (BAC); Seymour Owns (F); Seymour Owns (FCX); Seymour Owns (FXI); Seymour Owns (INTC); Seymour Owns (SBUX); Adami Owns (AGU); Adami Owns (C); Adami Owns (GS); Adami Owns (INTC); Adami Owns (MSFT); Adami Owns (NUE); Adami Owns (BTU); Terranova Owns (VRTS); Terranova Owns (C); Terranova Owns (UPL); Terranova Owns (GM); Terranova Owns (MS); Terranova Owns (SLXP); Terranova Owns (BAX); Terranova Owns (TEVA); Terranova Owns (CVI); Terranova Owns (RSX); Terranova Owns (SU)’ Terranova Owns (CNQ); Jon Najarian Owns (AMD), Is Short (AMD) Calls; Jon Najarian Owns (AKAM), Is Short (AKAM) Calls; Jon Najarian Owns (CLF), Is Short (CLF) Calls; Jon Najarian Owns (JOYG), Is Short (JOYG) Calls; Jon Najarian Owns (NVDA), Is Short (NVDA) Calls; Jon Najarian Owns (SPWR), Is Short (SPWR) Calls; Jon Najarian Owns (WMB), Is Short (WMB) Calls; Jon Najarian Owns (AKS), Is Short (AKS) Calls; Jon Najarian Owns (ANF), Is Short (ANF) Calls; Jon Najarian Owns (CSTR), Is Short (CSTR) Calls; Jon Najarian Owns (JNPR), Is Short (JNPR) Calls; Jon Najarian Owns (RAX), Is Short (RAX) Calls; Jon Najarian Owns (X), Is Short (X) Calls; Jon Najarian Owns (APA), Is Short (APA) Calls; Jon Najarian Owns (NBR), Is Short (NBR) Calls; Jon Najarian Owns (AKS), Is Short (AKS) Calls

For Joe Terranova
Terranova is Chief Market Strategist of Virtus Investment Partners, LTD
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For Brian Kelly
Accounts Managed By Kanundrum Capital Own (AMD)
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For Mike Haley
"As of right now I do not own any futures. I do have some forward contracts with local elevators that are backed up by futures contracts of corn, soybeans and wheat. All hedging positions and no speculation."

For Willie Williams
Societe Genarale Facilitates Transactions In Tradeable Currencies

For Ron Shah
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For Glen Yeung
Citigroup Global Markets Or Affiliates Has Managed Or Co-Managed Offering Of (AMD) In Past 12 Months
Citigroup Global Markets Or Affiliates Has Received Investment Banking Compensation From (AMD) In Past 12 Months
Citigroup Global Markets Or Affiliate Recieved Non-Investment Banking Compensation From (NVDA), (AMD), (MRVL) In Past 12 Months
(AMD) Is Or In Past 12 Months Was An Investment Banking Client Of Citigroup Global Markets
(NVDA), (AMD), (MRVL) Are Or In Past 12 Months Were Non-Investment Banking Clients Of Citigroup Global Markets (Securities-Related Services, Non-Securities-Related Services)
Citigroup Global Markets Or Affiliate Recieved Compensation From (AMD), (NVDA) In past 12 Months
Citigroup Global Markets Is A Market Maker In (NVDA), (MRVL)
Citigroup Global Markets And/Or Affiliates Has A Significant Financial Interest In Relation To (AMD)

For Brian Stutland
Stutland's Firm Is A Market Maker In VIX Futures And Options Holding Positions

For Gary Shapiro
***No Disclosures

For Tim Seymour SOT
***No Disclosures

For Dennis Gartman SOT
Funds Managed By Dennis Gartman Were Long Gold On 1/28/11

For Toni Sacconaghi SOT
An Employee Of Bernstein Owns (AAPL)
Accounts Over Which Bernstein And/Or Affiliates Exercise Investment Discretion Own More Than 1% Of (AAPL)
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