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Chip Stocks Surge: Intel, Broadcom Lead Overbought List After AI Partnerships

The tech market saw a notable divergence this week, with semiconductor stocks leading the gains and software stocks facing significant selling pressure. The overall market rally was supported by hopes of a U.S.-Iran ceasefire, pushing the Nasdaq Composite up 4.7%. Chip giants like Intel and Broadcom surged due to major AI partnerships with tech leaders such as Google and Anthropic, pushing their stocks into 'overbought' territory. Conversely, software companies like ServiceNow and Salesforce saw sharp declines. ServiceNow's dip was partly attributed to a downgrade by UBS, which cited concerns over AI disruption and budget cuts for non-AI applications.

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Chip Stocks Surge: Intel, Broadcom Lead Overbought List After AI Partnerships

The tech sector saw significant divergence this week, with semiconductor stocks surging amid major AI deals, while software names faced heavy selling pressure, pushing them into 'oversold' territory.

Market Overview and Technical Indicators

The broader market experienced a rally, fueled by hopes that a fragile ceasefire between the U.S. and Iran could be maintained. Major indices saw notable gains:

  • Nasdaq Composite: Rose 4.7%.
  • S&P 500: Increased by 3.6%.
  • Dow Jones Industrial Average: Gained 3%.

To gauge market momentum, analysts use the 14-day Relative Strength Index (RSI). Stocks with an RSI above 70 are considered 'overbought,' suggesting a potential pullback, while a reading below 30 indicates the stock may be 'oversold' and due for a rebound.

Semiconductor Stocks Lead the Rally

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Chip stocks surged this week as investors poured capital into semiconductor names, with the VanEck Semiconductor ETF (SMH) closing the week up 11%. Intel and Broadcom were among the most overbought names, driven by new partnerships related to Artificial Intelligence (AI).

Intel's Surge:

  • Intel surged nearly 25% by Friday midday, reaching an RSI of 75.
  • The company announced an expansion of its partnership with Google, committing to using multiple generations of Intel's CPUs in its AI data centers.
  • Furthermore, Intel CEO Lip-Bu Tan highlighted the company's role in designing and fabricating custom chips for SpaceX, xAI, and Tesla at Elon Musk's new Texas-based Terafab project.

Broadcom's Gains:

  • Broadcom also appeared on the overbought list, adding 19% and registering an RSI of 71.
  • Broadcom secured expanded chip deals with Google and Anthropic, expecting to produce future versions of Google's AI chips and providing Anthropic with access to significant computing capacity.

Software Sector Faces Downside Pressure

In contrast to the chip sector, software stocks experienced significant declines, leading to the iShares Expanded Tech-Software Sector ETF (IGV) closing the week 7% lower.

Key Software Stocks:

  • ServiceNow: The company was down 19% by Friday midday, achieving an RSI of 26 (oversold).
    • This decline followed a downgrade by UBS, which lowered ServiceNow's rating to 'Neutral' from 'Buy.' UBS cited concerns over potential budget pressure on non-AI application software.
  • Salesforce: The stock also appeared on the oversold list, declining 11% and registering an RSI of 29.
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