Recent data reveals a further lengthening of global semiconductor delivery times, a trend persisting even against a backdrop of rising prices.
According to a new report from investment firm Susquehanna, the average lead time for semiconductors increased by five days in June to 19.4 weeks, marking the largest single-month jump in the current cycle. Notably, industry pricing also saw its "largest single-month increase," rising by 5% month-over-month. The simultaneous acceleration in delivery times and price hikes underscores the ongoing tightness in chip supply and demand.
The June increase in lead times was "broad-based," with approximately 81% of covered companies showing stable or longer lead times, and all distributors reporting growth. Delivery times rose across all product categories, which an analyst suggests "indicates the upturn is now broadening beyond analog parts."
Looking at specific categories, the power discrete segment remains tight, with power integrated circuits and MOSFETs seeing lead times increase by over 10 days. Field-Programmable Gate Arrays (FPGAs) are also under pressure, with Lattice Semiconductor Corporation and Xilinx, Inc. (owned by Advanced Micro Devices, Inc.) seeing lead times extend by two weeks for a fifth consecutive month. Passive component supply is also tightening rapidly, with both Vishay Intertechnology, Inc. and Murata Manufacturing Co., Ltd. experiencing longer lead times.
At the company level, ON Semiconductor Corporation, Diodes Incorporated, Renesas Electronics Corporation, and ROHM Co., Ltd. saw significant lead time increases, while Texas Instruments Incorporated, Microchip Technology Inc., and Infineon Technologies AG were described as "generally stable." Skyworks Solutions, Inc., MaxLinear, Inc., and Coherent Corp. also experienced "material increases" exceeding 10 days.
The Semiconductor Rollercoaster and the "Chipflation" Test for AI
Contrasting with the persistently tight supply-demand fundamentals, US chip stocks have experienced extreme volatility in July. The Philadelphia Semiconductor Index has fallen approximately 17% this month, despite still being up about 65% year-to-date. The index dropped around 10% last week, its largest weekly decline in over a year, and has retreated more than 20% from its June peak, officially entering a technical bear market.
Behind this sharp price volatility, the concurrent rise in delivery times and prices points to a deeper structural issue emerging: "Chipflation." A global market strategist recently warned that "chipflation" – the surging prices of AI-related logic and memory chips – will be the next headwind testing the resilience of the AI trade.
She noted that hyperscale cloud providers are caught in a dilemma: facing rising input costs from chip price increases alongside climbing energy and utility expenses, while the return on their AI investments may take years to materialize. She believes this environment will truly test market conviction, suggesting investors might tolerate short-term volatility and a slower pace of monetization if they remain confident in the AI trade's long-term potential.
Data from Asian markets is providing evidence for these concerns. One of the best indicators for observing memory chip inflation is the South Korean DRAM export price index. In past cycles, year-over-year growth in memory chip prices typically peaked around 100%. Currently, the year-over-year increase for South Korean DRAM prices is as high as 370%.
While soaring chip prices signal strong demand, they are also a double-edged sword. Persistently high prices will significantly increase the cost of building AI infrastructure, which could in turn dampen or even end the current wave of AI capital expenditure. Consequently, the current investment focus within the AI supply chain is on "quality," characterized by robust profitability, low-to-moderate earnings volatility, and sufficient interest coverage.
The chairman of South Korean memory chip giant SK hynix Inc. recently issued a warning on chip inflation, stating that it is abnormal for memory market prices to remain elevated for an extended period. He forecasts that global semiconductor demand will expand significantly next year, with AI-related demand growing 60% to 100% compared to this year, and overall semiconductor demand increasing by at least 50% to 60%. However, new supply additions next year are expected to be "almost zero," potentially widening the supply-demand gap.
Addressing concerns that capacity expansion could prematurely end the current "super cycle," he offered a thought-provoking response: current chip prices are already at abnormally high levels and should naturally come down. If prices continue to climb and further fuel "chipflation," the semiconductor industry will ultimately face repercussions. He clarified, however, that increasing supply and driving prices lower does not equate to companies being unable to turn a profit.
Amid the intertwined forces of persistent supply-demand tightness and extreme market volatility, the semiconductor industry's next move has become one of the most closely watched focal points in global capital markets.
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