Semiconductor stocks have staged a fearsome rally this year, reigniting debate on Wall Street over whether artificial intelligence (AI) is in a bubble. Even with U.S.-Iran ceasefire talks deadlocked, chip-related names have produced their best run since the dot-com bubble of the late 1990s, gradually fueling investor anxiety. Semiconductors, as a capital-intensive industry, also have relatively distinct boom-and-bust cycles because investment in production facilities and the timing of demand creation often diverge. While there is little disagreement that semiconductor industry growth driven by hyperscalers' massive AI data center investments will continue for some time, forecasts diverge sharply on how long the current boom will last.
Chip Stocks Surge Again on Jensen Huang's Comment...Outpace Nasdaq, S&P 500 Returns Amid Record-High Run
On Tuesday in New York, the Dow Jones Industrial Average (up 0.45%), the Standard & Poor's 500 Index (up 0.13%), and the Nasdaq Composite (up 0.03%) all rose to set fresh record highs. The S&P 500 and Nasdaq extended their winning streaks to nine consecutive sessions.
The sector leading the New York market's rally that day was once again AI semiconductor-related stocks. Hewlett Packard Enterprise, an enterprise cloud, server, and storage company, ignited gains in related stocks early in the session after disclosing surprise earnings the previous day driven by expanding AI server demand. Hewlett Packard Enterprise jumped 19.47% on the day.
AI semiconductor stocks then climbed even more steeply after Nvidia CEO Jensen Huang, speaking at Computex, Asia's largest information technology (IT) trade show held in Taipei, Taiwan, referred to Marvell Technology CEO Matthew Murphy as the leader of "the next company that will be worth $1 trillion." Marvell is a fabless chip designer that develops high-performance chips used in global data infrastructure, including cloud computing and fifth-generation (5G) mobile networks. Huang stressed that "Marvell's chips are essential to data centers," and Marvell's shares soared 32.52%. Marvell's market capitalization, which had been below $200 billion the previous day, jumped to $254.4 billion (about 386 trillion won) in a single day.
With investor enthusiasm for chip stocks showing no signs of cooling, other names also rallied, including Broadcom (up 4.70%), Micron (up 2.76%), AMD (up 2.24%), and Qualcomm (up 5.17%). The Philadelphia Semiconductor Index surged 5.87%. The sector now appears to explode higher at the slightest brush with AI-related news.
The chip rally is hardly new. Expectations for AI market growth have proven powerful enough to overwhelm even a megaton-scale negative such as the recent Middle East war. The Philadelphia Semiconductor Index has climbed 93.80% year-to-date, dwarfing the gains of the Nasdaq (16.57%) and the S&P 500 (11.17%), both of which are setting new highs daily. Or more accurately, the Nasdaq and S&P 500 are hitting record highs because of the rally in the chip sector. At the individual stock level, leading names including Micron (up 272.83%), SanDisk (up 226.87%), Intel (up 192.49%), AMD (up 143.53%), Qualcomm (up 40.80%), Broadcom (up 39.17%), and Nvidia (up 19.47%) have all outperformed the broader market this year. The semiconductor wind blowing through the New York market is also lifting Korea's SK hynix (000660.KS, up 262.52%) and Samsung Electronics (005930.KS, up 200.67%) and powering the KOSPI's record-setting run. Micron and SK hynix both crossed the $1 trillion market cap threshold on May 26 and 27, respectively.
Hyperscaler Investment and AI Agent Evolution Drive Chip Supply Squeeze...Wall Street Whispers of a Downturn Cycle
Chip stocks have recently shown extreme strength because U.S. hyperscalers' massive data center investments have fueled an unprecedented earnings bonanza. Demand for high-bandwidth memory (HBM), essential to running AI, has exploded, while supply of general-purpose DRAM has also tightened, sharply boosting profits at memory chip makers. Combined capital expenditures (CAPEX) this year by the five major hyperscalers — Google parent Alphabet, Amazon, Microsoft, Meta, and Oracle — could reach as much as $750 billion (about 1,125 trillion won). Wall Street expects this figure to keep rising for some time beyond next year.
The evolution of AI models — from simply answering questions to acting as agents that perform actual tasks — is another factor stirring investor expectations. With supply of Nvidia's high-end graphics processing units (GPUs) falling short in the AI accelerator market, central processing unit (CPU) makers including Intel and AMD are also reaping spillover benefits. PC maker Dell is drawing attention as a leading AI server company, while valuations of chip equipment suppliers Lam Research and KLA continue to climb.
On May 28, the Financial Times (FT) reported that semiconductor stocks were posting their best performance since the dot-com bubble era thanks to the AI investment boom. The FT predicted that the Philadelphia Semiconductor Index would record its strongest annual gain since 1999, when the dot-com bubble peaked. Charles Lemonides, founder of hedge fund ValueWorks, told the FT, "Hyperscaler chip demand is firmly in place, and chip companies are raking in enormous amounts of money. This boom will continue for years to come."
The risk is that an unexpected economic downturn could prompt hyperscalers to suddenly cut investment. In that case, chip demand would drop sharply, and chip-related share prices, which now reflect a long-term boom, could correct.
As the chip investment frenzy shows no signs of stopping, voices on Wall Street and in major foreign media warning of overheating are growing louder. On May 31, Bloomberg pointed out that with Micron's shares continuing their unusual strength, the AI bubble debate was reigniting, particularly around the chip sector. Bloomberg explained that, unlike past iterations, the current bubble debate centers on whether the surge in memory chip demand truly reflects a structural shift driven by the AI revolution. As recently as 2023, just three years ago, Samsung Electronics' memory division, SK hynix, and Micron all posted losses and stood at the center of crisis concerns. Ed O'Gorman, CEO of U.S. investment firm Riverwealth Advisors, said, "I can't shake the thought of how volatile the chip sector is, and how things that look great can change overnight. Even if the absolute scale of capital expenditure is growing, it appears to be heading toward a plateau."
"Like the Dot-Com Bubble, Only 20 Stocks Hitting Record Highs...Fed Tightening Could Burst Bubble of Greed"
According to CNBC on June 1, Michael Hartnett, the prominent Wall Street strategist at Bank of America (BofA), also said in a recent report, "On May 29, when the S&P 500 set a new all-time high, only 20 of its constituents had reached record highs. The current U.S. market dynamic strangely resembles the phenomenon at the peak of the dot-com bubble in March 2000, when only 20 stocks were hitting all-time highs." This analysis applies equally to the KOSPI, which is being pulled higher by the dual engines of Samsung Electronics and SK hynix. Hartnett argued, "Speculative price action is not over yet, but this is a signal that a bubble burst is imminent. The Federal Reserve's monetary tightening policy and benchmark rate hikes are likely to trigger the end of the bubble."
U.S. investment bank Oppenheimer
