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The chip stocks are gearing up for a make-or-break moment this week: Trader

The once-hot chip stocks have sunk from the highs, and one trader says it's a make-or-break week for the group as Nvidia gets ready to report earnings.

The SMH semiconductor ETF has skyrocketed in the past two years, up nearly 95 percent since 2015. However, Dan Nathan, co-founder and editor of RiskReversal.com, says the group could be facing a critical moment when the ETF's third-largest holding, Nvidia, reports earnings this week.

So far this year the chip stocks ETF has only managed to rally 4 percent. This compared with its near 13 percent rise in the same time period last year.

"This is going to be a big one for the SMH here," Nathan said Monday on CNBC's "Fast Money."

According to Nathan, mixed earnings from the group's top holdings, Intel and Taiwan Semiconductor, now have the SMH "sitting on key support" around the $100 level.

"When you think about those two, Intel and Taiwan [Semiconductor], they went two very different ways right after their earnings," Nathan said.

Shares of Intel rose 7 percent in after-hours trading following its earnings late last month, and are now up more than 15 percent year to date. This while Taiwan Semiconductor fell nearly 6 percent in premarket trading off its report and is now down around 1 percent since January.

A big catalyst for both stocks comes from Apple — a top customer for their semiconductor products. Despite shares of the iPhone maker surging to new highs in the past week, Taiwan Semiconductor and Intel have largely sat out the rally.

Nathan believes this could put more pressure on the broader group when Nvidia reports after the bell Thursday.

"The [SMH] is 11 percent from its highs and only 5.5 percent from its recent lows," Nathan said. "If Nvidia were to do the impossible and guide down, I think the semiconductor sector could go a bit lower ... about the mid to low 90s."

Shares of the semiconductor ETF were up Tuesday afternoon, trading around $101.64.

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  • Melissa Lee

    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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