Semiconductor rally faces a 'collapse' as chip demand breaks down, economic forecaster Lakshman Achuthan warns

Economic forecaster Lakshman Achuthan is warning investors they could get scorched by one of 2019's most popular groups.

Achuthan believes the semiconductor rally is showing signs of breaking down, and he's blaming shipment demand.

"Collapse comes to mind when you look at global demand for semiconductor chips," he said Friday on CNBC's "Trading Nation."

Achuthan, who co-founded the Economic Cycle Research Institute, builds his bearish case with a chart showing semiconductor chip demand.

"It's a pretty dramatic comedown," he said. "We've got a 20 percent decline in the volume of semiconductor demand, and that translates to a ten year low in the growth rate of demand."

It's a contrarian call that comes with semiconductors locking in their best day since January 30 on Friday. The VanEck Vectors Semiconductor ETF, which tracks the group, is up almost 22 percent so far this quarter. It's on pace for its best first quarter since its May 2000 inception date.

The bullish sentiment behind the semiconductor rally is centered on forward looking, misguided assumptions about growth, Achuthan said. He ties the continued sluggishness to a slowdown in the overall U.S. economy.

"Demand for a product that these companies sell, that's not going to go up. There's no rebound in sight," Achuthan said.


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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

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