The semiconductor sector is experiencing an extraordinary wealth creation event. Over the past six weeks, the combined market capitalization of S&P 500 semiconductor constituents has increased by approximately $3.8 trillion, a rally so intense that even seasoned investors describe it as "somewhat surreal." (The semiconductor basket index has shown sustained strength since April.) The core driver of this rally is the seemingly insatiable demand for computing power from AI companies. This demand has now spread from AI-specific chips to a broader range of semiconductor categories, including memory chips and traditional CPUs. Major chipmakers have recently delivered impressive first-quarter earnings reports and provided even more optimistic full-year outlooks. Intel has surged 239% year-to-date, while SanDisk has skyrocketed 558%. Major indices in the South Korean stock market have nearly doubled from their lows. The central question for the market now is navigating the fine line between joining the 'last half-hour of the party' and guarding against the eventual ebb of the tide.
**AI Demand Spillover: All Chip Categories Enter a Boom Cycle**
The narrative driving this semiconductor stock rally underwent a pivotal shift earlier this year. For years, investor enthusiasm was largely concentrated on GPUs used for training and running generative AI models, while traditional CPUs were nearly forgotten by the market. However, as Anthropic's latest AI model gained market recognition for its powerful autonomous agent capabilities, the demand structure for AI application scenarios changed accordingly. AI agents can operate around the clock, continuously generating massive amounts of data, thereby significantly boosting demand for memory chips. Concurrently, demand for traditional CPUs is also rebounding. Jonathan Cofsky, portfolio manager of the $8 billion Janus Henderson Technology and Innovation Fund, stated:
We are witnessing the world's wealthiest tech companies in a frenzy to purchase every available chip and computing unit. This is directly translating into substantial profits for manufacturers.
Shortages across various chip types are pushing prices higher. Analysts expect this supply-demand imbalance to persist for years rather than months, with multiple bottlenecks constraining the pace of capacity expansion.
**Earnings Underpin Valuations: A Fundamental Difference from the Dot-Com Bubble**
The most significant distinction between this rally and the 2000 dot-com bubble is the presence of robust corporate earnings. Take memory chip maker Micron Technology as an example. In 2023, the company's revenue was only $15.5 billion, and it recorded an operating loss, a period of low memory chip prices. Analysts now project its revenue for this fiscal year to rise to $107 billion, with full-year operating profit potentially reaching $77 billion. Despite the stock surging approximately 770% over the past year, according to FactSet data, its current price-to-earnings ratio is only 8.9 times its expected earnings for the next 12 months, benefiting from the massive profit growth. In comparison, the S&P 500 trades at a P/E of 23. By traditional valuation standards, this high-flying chip stock appears "cheap." Denise Chisholm, Director of Quantitative Market Strategy at Fidelity Investments, noted:
The current anomaly lies precisely in how powerful the earnings growth is.
In contrast, during the dot-com bubble, many of the biggest winners had little to no profits, or were outright loss-making. This fundamental difference remains the core reason most analysts maintain a positive outlook on chip stocks.
**Retail Investors Flock In, Leveraged ETF Soars Over 1,000%**
Beyond institutional investors, retail participants are also highly active in this semiconductor feast. Data from Interactive Brokers shows that over the past week, nearly all of the platform's ten most actively traded securities were chipmakers, tech companies buying chips, and one semiconductor-focused ETF—SOXL. SOXL uses derivative instruments to track three times the daily movement of the NYSE Semiconductor Index. Over the past year, this ETF has surged approximately 1,200%. As of the end of April, the combined daily trading volume for the triple-leveraged inverse semiconductor ETF SOXS and the triple-leveraged long semiconductor ETF SOXL had surged to about 330 million shares, the highest level in at least 16 months. In comparison, the trading volume for the triple-leveraged long S&P 500 ETF SPXL and the triple-leveraged inverse S&P 500 ETF SPXS fell to about 90 million shares, nearing its lowest level this year. Steve Sosnick, Chief Strategist at Interactive Brokers, stated:
AI is, to a significant degree, driving the market and even the broader economy. Semiconductors are the most direct manifestation of this logic at present... This is one of the most vertical rallies I can recall.
Barclays analysts wrote in a note to sales and trading clients this week:
Remember, 'crazy' moves can often last longer than most people expect.
**Bubble Debate Intensifies: Veterans Choose to Hold but Remain Wary**
However, the shadow of history continues to loom over this exuberance. In the week ending May 7, the semiconductor ETF SMH recorded a $2.3 billion outflow, the largest weekly outflow for the fund since its launch in 2011. Meanwhile, the PHLX Semiconductor Index just completed its strongest six-week rally since the week of March 10, 2000—a historical juncture marking the peak and subsequent collapse of the dot-com bubble. Some veteran investors who lived through that era are choosing to continue holding their positions but are quietly calculating their exit strategies. Seasoned investor Peter Feinberg has held Broadcom and Taiwan Semiconductor Manufacturing Company for over a decade, investments that have helped his portfolio consistently outperform the S&P 500 in recent years. He admits the gains since early 2026 have felt "somewhat surreal." He captured a sentiment shared by many experienced investors with one phrase:
The most fun part of the party is often the last half-hour before the police arrive to shut it down.
Feinberg noted he is considering whether and when to trim some of his chip holdings but currently remains invested, while constantly reminding himself that the good times will not last forever.
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