Deep Dive: Are Chip Stocks in a Bubble?

Welcome back to the rundown for another weekend deep dive today. We are talking about chip stocks for the past few months The big debate on Wall Street has been whether we're in the middle of an AI bubble big tech companies are spending hundreds of Billions of dollars on data centers AI startups are fetching near trillion dollar valuation and every company is trying to become AI Native but maybe the better question to ask now is whether Conductor stocks are in a bubble semiconductor stocks have been ripping over the last few weeks So today we're breaking down why chip stocks are surging why the rally has spread beyond Nvidia and whether this is the Beginning of a real semiconductor super cycle or 1999 all over again. We got a great one for you today Let's dive in Chip stocks have been on a historic run over the last few weeks the socks index Which tracks the 30 largest semiconductor stocks in the US is up more than 55% since the start of the year and in April alone The index rallied 40% which was the best month for the index in 26 years back during the peak of the dot com bubble We'll come back to that comparison a bit later now This rally has been driven almost entirely by AI spending and most of the AI spending is coming from the big four tech Hyperscalers. I'm talking Amazon Google Microsoft and meta these companies reported earnings a couple weeks ago And they said they plan to spend over $725 billion on capital expenditure this year and most of that money is going towards building AI Data centers and for every one of these data centers being built they need to be stacked with GPU CPUs Memory networking chips you name it and that demand is showing up in the industry numbers The semiconductor industry association reported that sales in 2025 topped $791 billion which was up more than 25% from 2024 and things aren't slowing down this year The association just reported that global chip sales hit 298 billion dollars in the first quarter of 2026 alone That's up 25% from Q1 of last year and in March alone sales were up a staggering 79% compared to a year ago in fact the industry is now on track to hit one trillion dollars in global semiconductor revenue For the first time ever to put this into perspective the industry didn't cross $500 billion until 2021 so we've nearly doubled the revenue in just five years and I think it's key to understand that this isn't just about Demand being high It's the fact that demand is so high that it's leading to bottlenecks across the supply chain You know at the start of the AI boom a couple years ago the bottleneck was GPU specifically Nvidia's AI chips every company in the world wanted Nvidia's chips and that's how Nvidia became the king of the AI boom and the most valuable Company in the world today, but now the bottleneck has moved on to other parts of the supply chain I'm talking high bandwidth memory. I'm talking advanced packaging found recopacity power and cooling in fact data center Construction itself is constrained right now and that's why the AI rally has now spread way beyond Just Nvidia. It's now lifting up companies like micron sand is intel and even companies that make fiber optic cables like Corning and power systems and cooling equipment. I mean if your company touches an AI data center There's a good chance the stock is probably up and all those bottlenecks in the supply chain are driving up costs In fact the hyperscaled has had to increase their cap expanding partly because component cost are going up and all of that Added cost is going directly into the pockets of the semiconductor companies Shipmakers in the S&P 500 are expected to post earnings growth of nearly 110% for Q1 Which is the highest of any sub sector in the entire S&P tech space and what's crazy is that some on Wall Street now are projecting total AI Capbex could hit a trillion dollars by 2027 Which suggests the semiconductor rally may still have room to run so let's zoom in on three of the biggest winners so far of the chip rally this year Let's start with AMD a company that a lot of people counted out as a serious AI player a couple years ago Well the company reported earnings this past week and they showed investors that they need to be taken seriously revenues were up 38% year over year and data center revenue which includes their AI chips jumped 57% AMD has done a great job positioning themselves to be the best alternative to Nvidia as I mentioned earlier Nvidia is the king of AI because every company in the world wants their chips But two things have changed that have been in favor of AMD The first is that the AI market got so big that there's room for more than one GPU supplier In fact hyper scalers like meta and Microsoft don't want to be a hundred percent dependent on a single chip maker like Nvidia They started diversifying meta signed a massive multi-year deal with AMD for up to six gigawatts of GPU deployment for their AI Data centers on top of that open AI signed up for AMD's next gen Helios chips And there's also rumors that anthropic isn't talked with AMD so that was the first shift the second big shift that happened is that Demand for AI went from training to inference and that shift is bringing CPUs back into the spotlight See training is when an AI company builds the AI model inference is when people use the model to answer questions or run AI agents and as AI has gone mainstream It's the inference side that has exploded so you know when AI companies were just training massive models a couple years ago It was all about getting as much raw GPU horsepower as they could but now we're in the era of AI agents Now these are AI systems that don't just answer a question But they go out and do things like answer email and write code and manage workflows and running all these agents at scale Requires a ton of inference compute which also requires CPUs and that's why CPUs are in huge demand again And that's great for AMD because they also make CPUs In fact CEO Lisa sued things that CPU will be a big tailwind for the company AMD's forecast for the server CPU market went from about 18% annual growth back in November to now projecting 35% annual growth with the market topping 120 billion dollars by the end of the decade so essentially AMD nearly doubled their growth forecast of CPUs in just six months So that means that AMD is well positioned to benefit from both sides of the AI trade because they make both CPUs and NGPUs and investors are starting to see that potential AMD stock is up more than a hundred percent year to date at the time of this recording So shout out to all the AMD believers out there that were sticking with the stock over the last few months now I should point out that AMD is now trading at a 33 times forward earnings Which is actually a premium to Nvidia right now some analysts think that a lot of the good news from AMD's already priced in So we'll see how much more room the stock has to run speaking of valuations Let's talk about a company that pretty much came back from the dead and is now hitting all time highs All right, let's talk about Intel because the Intel story might be the most insane comeback in the stock market right now before we dive into it Let's rewind the clocks to March of 2025 Intel had just fired their last CEO Pat Gelsinger They were running behind other manufacturing timelines. They were falling behind on AI losing billions of dollars And the stock dropped to under $20 a share which was a multi-decade low There were people out there wondering if Intel was gonna survive and writing its obituary Well the company brought in lip Bhutan as the new CEO First thing he did was cut 20,000 jobs and refocused the company on its next generation 18a manufacturing process and then after that he started making trips to the White House The initially president Trump was on a fan of lip Bhutan So lip Bhutan met with the president and by the end of their meeting The White House announced plans to invest in Intel I'm not sure what lip Bhutan set the Trump but he definitely charmed him The investment from the US government into Intel became official in August of last year The Trump administration converted nearly $9 billion in grants that was left over from the chip sack And use it to buy Intel stock purchasing 433 million shares at $20.47 a share That gave the US government a 10% stake in Intel making them Intel's single largest shareholder You fast forward to today and the stock is trading above $120 a share at the time of this recording And Intel stock actually hit a record high earlier this week But you know I think the most important part of the US government investing into Intel Isn't the $50 billion in unrealized gains But it's the fact that they sent a signal to the tech industry that Intel is too strategically important to fail So after the US government invested last summer other companies got involved Softbank invested $2 billion in video invested $5 billion in signed a partnership with Intel to build custom data center CPUs for them Elon Musk also announced plans to build a chip manufacturing plant in Texas Using Intel's Foundry services for Tesla XAI and SpaceX And then this week there was a Wall Street Journal report saying that Apple and Intel Have reached a preliminary agreement for Intel to manufacture some of the chips that power Apple devices I mean the fact that Apple might use Intel to manufacture their chips was unthinkable a few months ago And now it might be happening For Apple this makes sense they're trying to diversify away from just relying on TSMC Which doesn't have enough capacity right now to make all their chips In fact a lot of companies in the tech industry want to diversify away from TSMC So Intel is in a very interesting position right now And this deal with Apple might be a sign that Intel's manufacturing capabilities are improving Intel's most advanced 18a manufacturing process went into high volume production in January At their Arizona Foundry and by all accounts the results have been better than expected So that's been very bullish for Intel stock Then the cherry on top is that Intel still makes some of the best CPUs in the world And like I mentioned earlier CPUs are in huge demand right now from AI data centers Now most people thought that Intel was gonna miss the AI boom Now they're in a huge way in the middle of it, both with their foundry business and their CPU business. So Intel has a lot of tailwinds right now, not only do they have the backing from the US government, they also have deals with Nvidia, Apple and Tesla, and they're benefiting from the surge in CPU demand. You put all that together and you can see why Intel stock has gone up 500% in the last 12 months. Now, the risk here for investors is that Intel still has to prove themselves, especially their foundry business. You know, the thing is Intel has a long history of making promises that they can't keep on the manufacturing side. So if the 18A manufacturing process hits issues at scale, the stock could give back a lot of these gains in a hurry. And then we have to talk about the valuation side. Intel is currently trading at around a hundred times forward earnings. That is an extremely rich valuation for a company that's still in the early stages of proving its turnaround. You know, for some context, Nvidia trades at 24 times forward earnings, and AMD is at 33 times. But look, I can see why investors are getting excited because if Intel pulls this off and becomes a credible alternative to TSMC, it would be one of the biggest strategic shifts in the entire tech industry. And clearly, some very powerful people are betting that this will end up happening. All right, so I've spent the last few minutes talking about GPUs and CPUs, but memory is now a critical part of the AI story. And it's the demand for memory that has made Micron one of the hottest stocks of the year up more than 150% so far. See, every single GPU that gets installed in a data center needs memory chips bonded directly on it to function. The specific type of memory that AI chips need is called high bandwidth memory or HBM. And right now, there are only three companies in the entire world that make HBM at scale. Two of these companies are based in South Korea. I'm talking about SK high nicks and Samsung. And then you have Micron, the only American company that makes HBMs. See, right now, there is a huge imbalance when it comes to supply and demand when it comes to memory. And that surge in memory demand has been huge for Micron's business. Micron's most recent quarterly results were absolutely ridiculous. Revenue's nearly tripled year over year to $23.9 billion. And what was mind blowing to me was that the company's gross margins hit a record 75%. What you have to keep in mind is that historically, these companies don't make that kind of margin. In fact, just a year ago, Micron's margins were like 35%. So it goes to show you what kind of pricing power Micron has right now because of the memory shortage. And there's another tailwind that doesn't get enough attention. See, as these AI models get smarter, they don't need less memory. They're gonna need more memory. The shift that we're seeing from simple chat bots to AI agents running in real time requires massive amounts of memory working at high speeds. In fact, every new generation of GPU requires more HBM than the last. So there might not be a slowdown in demand anytime soon. So that's why today, Micron is now the 12th largest company in the US with a market cap of over $842 billion at the time of this recording. Now, the big risk for Micron and memory stocks in general is that memory has historically been a boom in bus industry. So in price spike, companies overbuilt capacity, supply floods the market and then prices end up crashing. Memory is kind of like a commodity. It's just a matter of how fast these companies can spin up supply. In fact, Micron actually posted an operating loss back in 2024. So the question is whether this time is different and there's actually a case that it might be. The Wall Street Journal reported that major buyers are now signing long-term contracts with memory suppliers some are stretching as far as five years. That's a pretty big change for an industry that historically ran on 30-day deals. So if these long-term contracts become the norm, it could smooth out the boom bus cycle that has defined this industry for decades. Now here's what blows my mind here, is that Micron trades at just about eight to nine times forward earnings. Compare that to the semiconductor index average of about 26 times. So despite the stock being up over 700% in the past year, on the valuation basis, it's still one of the cheapest names in the entire chip sector. And I think it's partly because investors are still skeptical that these margins that Micron is posting will last. And historically speaking, they're right to be skeptical. Also, I want to give a quick shout out to Sandis. That stock continues to rip as well. It's up 500% this year, the best performing stock in the S&B 500. Now I'm not gonna do a full breakdown of Sandis on this episode. We actually did a deep dive on the company a couple months ago. So I'll put a link in the description if you want to go check that out. So what's my take here? Well, you know, whenever I see stocks went up really fast, especially in the same sector, I get a bit nervous. In the stock semiconductor index, just had its best months since the year 2000, which was the peak of the dot com bubble. And now multiple analysts are comparing this rally to that era and some are warning of a 25 to 30% correction. But I do want to point out to the key difference between now and the dot com era is that these chip companies are making real money. There is actual demand for their products and outside of Intel, the valuations based on their earnings aren't that ridiculous. Not to mention the demand for their products is coming from the most profitable companies on the planet. I'm talking Amazon, Google, Microsoft and Meta. These aren't startups burning through VC money. These are established multi trillion dollar businesses. Now that being said, I also wouldn't be surprised if we see a meaningful pullback in semi stocks. Now I've already highlighted some of the company's specific risk for AMD Intel and Micron. The big picture risk though is that everything in the semiconductor space depends on Amazon, Google, Microsoft and Meta continuing to spend at this ridiculous pace. In fact, the spending from these big tech companies is starting to strain them financially. The combined free cash flow for these four companies is expected to fall to about $4 billion in Q3, which is down from the quarterly average of $45 billion over the past six years. In fact, Amazon is projected to run a negative free cash flow this year. And some of these companies are now starting to take on debt. Meta has issued about $55 billion of debt in the last six months and Google has issued about $31 billion in new debt in the last quarter. So, at any point, these companies decide to trim back capex even a little, it could cost semi-stocks the tank. And look, it's also important to keep in mind that these companies are seeing a surge in demand because of a supply demand imbalance. So if supply starts to catch up in prices of memory and other components start coming down, investors could bail on these names pretty quickly. So look, if you've been invested in these names for a few weeks and months now, congrats. You're probably feeling pretty good right now. But if you're thinking about jumping in right now, just know that you're buying at historically elevated levels and a correction at some point isn't just possible, it's probable. The semiconductor super cycle is probably real, but so is gravity. Well, all right, guys, that's it for today's weekend, deep dive. Hope you guys enjoyed that one. You know, it's gonna be really interesting to see how the rest of the year plays out with semi-stocks. You know, Nvidia earnings are coming up later this month, so that could add more fuel to the fire or cost things to cool off. We'll have to see. We're gonna be covering Nvidia's earnings on the podcast in a couple weeks. So if you're a first-time listener just a heads up, we do post episodes throughout the week, recapping everything happening in the markets. Each episode is only about 10 minutes long, so if you want a quick way to stay up to date on everything happening in the markets, make sure you get subscribed to the podcast. Also, let me know in the comments on how you're feeling about the semiconductor rally. Are you riding the wave or do you think a pullback is coming soon? Drop your thoughts on Spotify and YouTube. And while you're at it, consider giving us a five-star rating wherever you listen to your podcast. You know, all that engagement really does help us out and it helps other people find the show. I think we're closing it on 7,000 ratings on Spotify. So shout out to everyone that's taking the time to leave us a comment or drop us a rating. Thank you guys again for listening, watching, and commenting shout out to Mike and Connor for all the work behind the scenes. And we'll see you guys back here tomorrow. (upbeat music)