Don't fear volatility; use it to own more stocks and less fixed income: Portfolio manager

Semiconductor weakness is attributed to positioning rather than deterioration in AI fundamentals, implying the pullback may be a near-term buying opportunity. The analyst advises maintaining an equity overweight while staying underweight fixed income and using volatility tactically rather than as an avoidable risk.

Analysis

The key market mechanism here is not a deterioration in AI economics but a de-grossing event in a crowded factor basket. That matters because semis are now a portfolio crowding trade as much as a fundamentals trade; when positioning washes out, the rebound can be sharper than the selloff, especially if hyperscaler capex commentary stays firm into the next earnings cycle. The best risk-adjusted expression is likely via high-quality AI infrastructure names and sector ETFs rather than the weakest analogs, which tend to lag even when the group recovers.

The bigger second-order issue is that investors are still fighting duration. If rates stay sticky, long-duration growth multiple support will remain unstable even with intact earnings, which is why the article's bullish fixed-income call is less compelling than the equity view. In that regime, volatility becomes a monetizable input: sell spikes in implied vol to re-establish exposure, but do not confuse a vol reset with a fundamental inflection.

Contrarian risk: consensus may be too quick to call the pullback purely technical. Positioning can stay unwound for weeks if macro data, export controls, or a single hyperscaler capex guide imply slower near-term AI spend, and semis can underperform even with long-term demand intact. The thesis is falsified if the next round of AI spend commentary flattens, if SOX loses prior support on rising real yields, or if credit spreads widen enough to force a broader de-risking.

Key Decisions for Investors

• Buy SMH/SOXX on a further 3-5% pullback; prefer 2-3 month call spreads over outright shares to limit theta while capturing a positioning squeeze if AI capex prints remain strong.
• Overweight NVDA and AVGO versus the broader market basket on weakness; these are the cleanest beneficiaries if the move is flow-driven and they should recover fastest when dealer hedging turns supportive.
• Keep duration light via TLT/IEF underweight until real yields roll over; if 10Y real yields keep rising, semis can remain choppy even with intact fundamentals.
• Use volatility tactically: buy VIX call spreads or hedge with short-dated index puts only on vol spikes, then recycle premium into core AI exposure rather than chasing strength.
• Set a falsifier alert: if hyperscaler capex guidance or SOX breadth softens over the next 1-2 earnings cycles, reduce AI beta and avoid averaging down on the assumption that it is only positioning.