AI semiconductor stocks are experiencing unprecedented growth, intensifying discussions about a potential market bubble. The surge in demand for high-bandwidth memory (HBM) has driven up stock prices and performance forecasts. However, concerns are rising that a slowdown in AI investments by major tech companies could highlight risks in the market cycle.
According to Bloomberg News on May 31, the Philadelphia Semiconductor Index has risen 69% over the past two months. If this trend continues through the end of the quarter, it is expected to record its largest quarterly increase ever. Approximately 80% of the S&P 500's 11% gain this year has come from just 10 tech stocks, seven of which are chip-related, with Micron and NVIDIA being the most significant contributors.
Memory companies are at the center of this bullish trend. The demand for HBM used in AI data centers has simultaneously boosted prices and performance expectations. Micron's stock price has more than tripled this year, while SK Hynix and Samsung Electronics have seen increases of 260% and 165%, respectively. Bloomberg reported that the market capitalizations of all three companies have surpassed $1 trillion.
Optimism is fueled by the belief that HBM is transforming the supply structure of the memory market. HBM is more challenging to manufacture and has a higher defect rate than standard products, requiring more processing resources for the same production capacity, leading to prolonged shortages.
This supply-demand pressure has resulted in upward revisions of profit estimates. According to Bloomberg's projections, Micron's net income is expected to rise from $8.5 billion in 2025 to $66.8 billion in 2026, with an anticipated increase to around $120 billion by 2027, surpassing Amazon's projected net income.
However, caution is also evident. Memory products are typically cyclical, meaning that a decline in demand or an increase in supply can lead to falling prices and rising inventory burdens. Micron reported a net income of $8.7 billion in 2022 due to increased electronics purchases during the pandemic, but faced a $5.8 billion loss in 2023 due to severe oversupply.
Valuation concerns are fueling the bubble debate. Based on projected earnings for the next 12 months, Micron and SanDisk are trading at about 10 times earnings. However, this figure assumes that the current surge in profits will continue. Historically, Micron has traded at 46 times earnings, while SanDisk has traded at 58 times. The price-to-earnings ratio of the Philadelphia Semiconductor Index is approximately 71, the highest level since the 2008 financial crisis.
The sustainability of this rally hinges on spending by AI data centers. The four major cloud and platform companies—Amazon, Meta, Alphabet, and Microsoft—are expected to invest up to $725 billion in capital expenditures by 2026, primarily for AI infrastructure development.
However, some companies are increasing their debt to finance this spending. If the pace of expenditure slows, both the performance outlook and stock prices of chip companies could be adversely affected.
* This article has been translated by AI.
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