The chip stock frenzy is still accelerating

The semiconductor sector is experiencing a rare wealth boom.

Over the past six weeks, the combined market value of the S&P 500 semiconductor components has increased by approximately $3.8 trillion, with such a rapid rise that seasoned investors are calling it “somewhat surreal.”

(A basket of semiconductor indices has continued to strengthen since April)

The core logic driving this rally is the near-unlimited demand for computing power from AI companies, which has spread from AI-specific chips to memory chips, traditional CPUs, and a broader range of semiconductor categories.

Major chip manufacturers have just reported impressive first-quarter earnings and provided more optimistic full-year outlooks. Intel has gained a total of 239% since the beginning of the year, SanDisk surged 558%, and major Korean stock indices are nearly doubled from their lows.

How to balance the “last half-hour party” with the risk of the tide receding has become the market’s most critical question.

AI demand spillover, all categories of chips entering an upcycle

The narrative logic of this chip stock rally underwent a key shift earlier this year.

For years, investor enthusiasm was mainly focused on GPUs used for training and running generative AI models, while traditional CPUs were almost forgotten by the market.

But as Anthropic’s latest AI model, with its powerful autonomous agent capabilities, gained market recognition, the demand structure for AI applications changed accordingly.

AI agents can operate around the clock, continuously generating massive amounts of data, significantly boosting demand for memory chips; at the same time, demand for traditional CPUs is also rebounding.

Jonathan Cofsky, portfolio manager of the $8 billion technology and innovation fund at Janus Henderson, said:

Now, the world’s wealthiest tech companies are frantically buying every chip and computing power they can get. This directly results in hefty profits for manufacturers.

The shortage of various chips is driving prices higher. Analysts expect this supply-demand imbalance to last for years rather than months, with multiple bottlenecks constraining capacity expansion.

Profitability supports valuation, fundamentally different from the internet bubble

The most notable difference between this rally and the 2000 internet bubble is the strong corporate profitability.

Take Micron Technology, a memory chip manufacturer, as an example. In 2023, the company’s revenue was only $15.5 billion, with operational losses at that time due to low memory prices.

However, analysts forecast that this fiscal year’s revenue will rise to $107 billion, with full-year operating profit potentially reaching $77 billion.

Although the stock price has surged about 770% over the past year, according to FactSet data, benefiting from significant profit growth, Micron’s current price-to-earnings ratio is only 8.9 times the expected earnings over the next 12 months, compared to the S&P 500’s P/E of 23.

By traditional valuation standards, this skyrocketing chip stock appears “cheap.”

Fidelity Investments’ quantitative market strategist, Denise Chisholm, said:

The current anomaly lies precisely in how strong the profit growth is.

In contrast, during the internet bubble, many of the biggest winners had little to no profits or were even fully loss-making. This fundamental difference is the core reason why most analysts remain optimistic about chip stocks today.

Retail investors flock in, leveraged ETFs surge

Beyond institutional investors, retail traders are also highly active in this chip feast.

Data from Interactive Brokers shows that over the past week, the 10 most actively traded stocks on the platform are almost all chip manufacturers, tech companies buying chips, and one semiconductor-focused ETF—SOXL.

SOXL tracks the NYSE Semiconductor Index three times daily through derivatives, tracking its daily gains and losses. Over the past year, this ETF has surged approximately 1,200%.

By the end of April, the combined daily trading volume of the 3x leveraged short semiconductor ETF SOXS and the 3x leveraged long semiconductor ETF SOXL had skyrocketed to about 330 million shares, the highest in at least 16 months.

In comparison, the trading volume of the 3x leveraged long S&P 500 ETF SPXL and the 3x leveraged short S&P 500 ETF SPXS fell to about 90 million shares, near this year’s lows.

Steve Sosnick, chief strategist at Interactive Brokers, said:

AI is driving the market to a significant extent, even the entire economy. Semiconductors are the most direct reflection of this logic right now… This is the closest I’ve seen to a vertical surge in my memory.

Barclays analysts wrote in a report to sales and trading clients this week:

Remember, the “crazy” moves often last longer than most expect.

Bubble debate heats up, veterans choose to hold and stay cautious

However, the shadow of history always looms over this frenzy.

In the week ending May 7, the semiconductor ETF SMH experienced a outflow of $2.3 billion, the largest weekly outflow since its launch in 2011.

Meanwhile, the PHLX Semiconductor Index just completed its strongest six-week rally since the week of March 10, 2000—right at the peak and subsequent collapse of the internet bubble.

Some veteran investors who experienced that era still choose to hold, but are quietly considering exit strategies.

Peter Feinberg, a seasoned investor who has held positions in Broadcom and TSMC for over a decade, said these investments have helped his portfolio outperform the S&P 500 in recent years. He admits that the gains since 2026 have been “somewhat surreal.”

He summed up the common sentiment among veteran investors:

The most fun part of the party is often the last half-hour before the police come to shut it down.

Feinberg said he is considering whether and when to trim some of his chip holdings, but for now, he continues to hold, constantly reminding himself that good times won’t last forever.

Risk warning and disclaimer

        The market carries risks; investments should be cautious. This article does not constitute personal investment advice and does not consider individual users’ specific investment goals, financial situations, or needs. Users should consider whether any opinions, views, or conclusions herein are suitable for their particular circumstances. Invest accordingly at your own risk.