Trading Nation

Chip stocks’ hot streak just came to a halt. Here’s what to buy instead

Trading Nation: Chip stocks under pressure

After seven straight weeks of gains, chip stocks are getting crushed. That weakness has one technician looking for strength elsewhere.

"We wouldn't be making an active bet on semis or against them either. Our recommendation to clients is to place our bets elsewhere in the technology sector," Ari Wald, head of technical analysis at Oppenheimer, told CNBC's "Trading Nation" on Monday. "We're seeing the relative flows go elsewhere in the sector. We like the software side of the sector instead."

The 's semiconductor industry group is up 11 percent in the year to date, while software and services has advanced 15 percent.

Another market watcher expects the pain for chip stocks to continue as a trade conflict between the U.S. and China escalates.

"Usually we don't look at politics and political agendas as affecting the fundamentals of companies, but given the trade wars and the tariff wars that are going on politically right now, we think there is going to be a pause in the uptick of all the semiconductor space," Michael Bapis, managing director at the Bapis Group at HighTower Advisors, said on Monday's "Trading Nation."

The SMH semiconductor ETF fell 2 percent on Tuesday after President Donald Trump fired off the latest shot in an intensifying trade dispute with China. On Monday, Trump requested additional tariffs of 10 percent on another $200 billion in Chinese goods in response to reactionary tariffs from China.

Many chip names have high revenue exposure to China. Semiconductor names Skyworks Solutions, Qualcomm and Broadcom generate at least 50 percent of revenue from the region, while Intel is as high as 23 percent of total sales.

Trade threats will be a painful problem for the time being, but the long-term picture for the chip stocks looks good to Bapis.

"Everything we do in this technologically expanding world — whether it's artificial intelligence, whether it's the cloud — revolves around semiconductors and chips, and we love the space long term. We would own it on dips," said Bapis. "Intel, if it dips a little bit more, we would be buying it. We would also buy Taiwan Semi."

Intel has fallen close to 5 percent over the past two days, while Taiwan Semiconductor has dropped 3 percent. The SMH ETF is down 2.6 percent for the week.