To The Moon

Semiconductor stocks have not responded to Big Tech earnings in the way investors might have expected. Despite continued investment in AI infrastructure, chip stocks remain under pressure, with the iShares Semiconductor ETF still more than 20% below its record high.

The latest earnings have highlighted an important distinction: strong AI spending does not automatically mean every semiconductor company will benefit equally.

Microsoft and Alphabet have both demonstrated significant demand for cloud and AI services, but their results also raise questions about the scale of investment required and how quickly that spending can generate returns. For chipmakers, the market needs more than announcements of larger AI budgets. It wants evidence that those budgets are becoming orders, shipments and sustainable revenue.

There are several companies worth watching:

Nvidia (NVDA): The key question is whether demand for AI accelerators can continue growing at a pace that justifies its valuation. Investors will be looking for evidence that hyperscaler spending is translating into continued orders.

Broadcom (AVGO): Its exposure to custom AI chips and networking gives it a different route to benefit from AI infrastructure spending. Growth in this area could help broaden the semiconductor rally beyond GPUs.

TSMC (TSM): As a major manufacturer for leading chip designers, TSMC’s outlook can provide an important indication of demand across the wider semiconductor industry.

Micron (MU): AI workloads require substantial memory bandwidth and capacity. Continued demand for high-bandwidth memory could be an important earnings driver.

AMD (AMD): Investors will be watching whether it can gain more share in the AI accelerator market and turn product launches into meaningful revenue growth.

The next catalysts may include upcoming earnings, management guidance, AI infrastructure spending updates and evidence that demand is extending beyond a small group of leading companies.

I think the semiconductor sector needs three things before a convincing recovery can take hold:

1. Clearer demand visibility: Chip orders and forward guidance need to confirm that AI infrastructure spending remains strong.

2. Broader earnings participation: Growth should extend beyond a handful of AI leaders to memory, networking and other semiconductor suppliers.

3. More attractive valuations: Even companies with strong growth prospects can struggle if investors believe too much future success is already reflected in the share price.

My view is that the long-term AI chip opportunity remains significant, but the market is becoming more selective. The next rally will need to be supported by actual earnings growth rather than expectations alone.

For discussion purposes only, not financial advice.