by Jason Norris, CFA
Director
Equity Research and Portfolio Management

Over the last seven weeks, the historic upward trajectory of semiconductor stock prices has given some investors flashbacks to the “bubble peak” of 2000. While these comparisons make dramatic news headlines, they largely neglect the backdrop that fueled the events of nearly 30 years ago.

As the semiconductor industry evolved and grew in the 1990s, it was the foundation for three world-changing technological innovations: the PC, wireless phones and the internet. Semiconductor stocks were strong performers well into the mid-to-late 90s, with a parabolic move starting in August 1998, as the S&P 500 semiconductor industry posted a 300% gain. Ultimately, this came to an exhausting (and disruptive) close in 2000.

However, the semiconductor needs of today are very different from those of then. In the 90s, the emphasis was on consumer electronics; today, it’s AI infrastructure and workloads, an industry with the constant and increasing generation of new data. The International Data Corporation (IDC) reported that, from the entire history of computer data creation through 2023, 529 trillion gigabytes of data had been created; from 2024 to today, it was 549 trillion. This level of data generation has driven an insatiable demand for semiconductors. This demand has driven a 600% return to the S&P Semiconductor Industry index since the first release of ChatGPT in early 2023.

Since then, semiconductor stocks have not become more expensive but have grown in line with their earnings, which we find appealing. When we research the semiconductor space, we consider both its near-term strength and the expectation that hyperscalers' capital expenditures will shift to a low-growth environment. Over the next few years, it will be important to understand our clients’ exposure to volatile semiconductors while managing their risk- reward profile.

Takeaways for the Week

Energy prices pushed inflationary pressures higher, resulting in the yield on the 10-year U.S. Treasury at nearly 4.5%
Semiconductor stocks finished the week up 5%, bringing the year-to-date return to 55%. NVIDIA will report earnings next week, which will likely signal whether the momentum continues

Disclosure

The views expressed represent the opinion of Ferguson Wellman. The views are subject to change and are not intended as a forecast or guarantee of future results. This material is for informational purposes only. It does not constitute investment advice and is not intended as an endorsement of any specific investment. Statements of future expectations, estimates, projections and other forward-looking statements are based on available information and Ferguson Wellman’s views as of the time of these statements. Past performance may not be indicative of future results. Ferguson Wellman, Octavia Group and West Bearing do not provide tax, legal, insurance or medical advice. This material has been prepared for general educational purposes only and not as a substitute for qualified counsel who can determine how this information applies to you. We believe the information provided is from reliable sources but should not be assumed accurate or complete.

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