Semiconductors & AI infrastructure — year to date

Market backdrop

In the week to Friday Oct 9, chip stocks fell while the S&P 500 rose 1.2% and US interest rates stayed high — the mix that decides how much investors will pay for fast-growing chip companies.

The two chip funds fell 4.3% (SMH) and 5.0% (SOXX) in the week, while the S&P 500 moved +1.2% and the Nasdaq 100 +0.2%. The year-to-date lead is still wide: the Nasdaq 100 is up 22.2% since Dec 31 against 14.1% for the S&P 500 (8.1 percentage points apart), and SMH is up 67.5% — 53.4 points ahead of the S&P 500, against 62.3 points a week earlier.

On Friday alone (1 day, regular session), the typical defensive blue-chip stock moved +0.05% while the typical large growth stock moved -0.50% — a gap of 0.55 percentage points in favour of the defensive stocks. The typical semiconductor stock moved -0.57% that day, and the Magnificent Seven (the largest US tech stocks) +0.97%.

Interest rates are the headwind. The 10-year Treasury yield stood at 5.28% at its latest reading (Oct 7), up 0.50 points in a month; the 2-year at 4.77%. The high-yield spread — the extra yield investors demand to lend to riskier companies — was 3.15% (Oct 8), 0.48 points wider than a month earlier. Higher yields make future profits worth less today, which weighs most on the highest-valued stocks.

Chips — year to date

Since Dec 31, chip stocks have far outrun the broad market — the SMH chip fund is up 67.5% — but this week 27 of the 29 fell, led by chip making & packaging.

All 28 chip stocks with a full year of New York trading are up since Dec 31, and 13 of them have at least doubled. SanDisk leads with +566.4%; Qualcomm trails with +2.6%. By group, memory & storage has done best (typical stock +184.7%) and chip making & packaging least (+49.2%).

Only Broadcom (+1.8%) and Marvell (+1.1%) rose this week; the typical chip stock moved -5.9%. Chip making & packaging fell the most as a group (typical stock -12.3%), and the biggest single falls were Aehr Test Systems (-21.1%), Arm Holdings (-13.4%), SK hynix (-13.4%), Amkor (-12.3%). Compute & connectivity chips held up best (-3.2%). Storage stocks have swung on supply news: Toshiba's plan to expand its hard-disk output hit Seagate and Western Digital on Oct 2, and analysts split this week over whether it matters (247 Wall St, Oct 2; 247 Wall St, Oct 5). We found no single company announcement behind the rest of the week's fall.

Chips — valuation & earnings

Prices at the Oct 9 close set against analysts' profit forecasts show the memory makers look cheapest and the chip designers and test companies dearest — and those forecasts start being tested on Oct 14, when the reporting season opens.

The typical chip stock trades at 25.8 times next year's expected earnings (forward P/E). The cheapest are SK hynix at 4.9, Micron at 5.0 and SanDisk at 5.9 — analysts expect record profits from high memory prices. The dearest are Arm Holdings (86.9) and Aehr Test Systems (61.2). 20 of the 28 with a PEG ratio sit below 1 on a one-year basis, which flatters fast-growing and recovering companies.

For the 14 chip companies with both figures, options traders expect a smaller move around the next report than their average move after past reports in 8 cases, and a move about in line with past reports (within 0.5 points or 10%) in 3: KLA Corp (±7.9% vs ±7.8%), Qualcomm (±7.0% vs ±7.5%) and TSMC (±2.5% vs ±2.9%). Arm Holdings (±9.1% vs ±6.1%), Applied Materials (±6.6% vs ±3.8%) and ASML (±4.0% vs ±2.4%) are priced for a bigger swing than usual. Two report dates moved since last week: Intel now reports on Oct 29 (was Oct 22) and Western Digital now reports on Oct 22 (was Nov 5).

Forward P/E: share price ÷ analysts' expected earnings per share for the next financial year. PEG (1-year): forward P/E ÷ expected earnings growth over the next year only — not the usual 3–5 years — so it reads low for fast growers and companies recovering from a weak year; n/a where growth is expected to be zero or negative. Move options expect: the share-price move (±%) options traders price in around the report, shown only for companies worth $100B or more where options data was available (options prices from the Oct 6–8 closes). Avg move: the average size of the share-price move after each of its last reports, up or down, with the number of reports in brackets.

Chips — price trends & signals

At the Oct 9 close most chip stocks still trade above their long-term trend line, but this week's selling pushed several through shorter-term lines — useful to know before reports that can move prices sharply.

21 of the 28 chip stocks with enough trading history close above their 200-day average — the average closing price of the past 200 sessions, a common gauge of the long-term trend — against 24 of 28 a week earlier. The 7 below it: Amkor, Broadcom, Camtek, NXP Semiconductors, Nova, Rambus, Western Digital. SK hynix's New York shares are too new to have a 200-day average.

The RSI (relative strength index, 0–100) compares recent gains with recent losses; above 70 is usually read as overbought, below 30 as oversold. No chip stock closed Friday above 70, against 5 a week earlier (AMD, TSMC, FormFactor, Texas Instruments, Analog Devices). None is at or below the oversold mark of 30. The typical chip stock's RSI is 51, near the middle of the range.

In the five sessions to Oct 9, 19 of the 29 chip stocks crossed a line. 8 fell below their 50-day average (Aehr Test Systems, SK hynix, Seagate, Amkor, Arm Holdings, Nova, NXP Semiconductors, Broadcom) and 4 below their 150-day (Aehr Test Systems, Camtek, Kulicke & Soffa, Rambus).

Checked across 1,996 of 1,998 US-listed companies worth $2B or more. Candlestick patterns are read in batches after each close, and when this report was built they had been read for only 40 of 1,173 candidates, so candle signals are mostly missing this week.

Company deep dives

Four chip companies picked from this week's data — the year's best, the year's weakest, the week's sharpest faller among the large ones and the first to report — show how wide the spread inside the group is, from a gain of 566% this year to almost none.

All four picks hold on Friday's data: SanDisk has the best year-to-date return of the 28 chip stocks with a full year of trading, Qualcomm the weakest, Arm Holdings fell the most this week among chip companies worth $10B or more (-13.40%, just ahead of SK hynix's -13.38%), and ASML reports first, on Oct 14. Aehr Test Systems fell further (-21.1%) but is a much smaller company, worth about $2.8B, with no report date in the earnings calendar used here.

What happened to last week's four levels: SanDisk never closed below $1,572.78 (Friday $1,581.82, 0.6% above it); Broadcom closed above $367.50 on Oct 6 but fell back by Friday ($361.54); Western Digital closed below $400.02 on Oct 8 and stayed there (Friday $397.28); ASML never closed below $1,721.58 (Friday $1,780.34, 3.4% above it).

Levels below/above: prices where the stock turned at least twice before, over the past two years of daily closes (the map runs to Oct 8; distances are measured from the Oct 9 close) — not a forecast that it will turn there again. Qualcomm closed inside a zone where it turned before ($169.90–$176.25).

SanDisk (SNDK). Up 566.4% this year, the best of the 28 chip stocks, on surging prices for the flash memory used in AI data centres. It fell 8.0% this week, sits 33% below its 52-week high and closed right at its 50-day average ($1,582.50). It trades at 5.9 times expected earnings and reports on Oct 29, after the close; options price a ±6.2% move (Oct 8 options prices) against ±9.3% on average after its last 4 reports.

Qualcomm (QCOM). Up only 2.6% this year, it replaces Broadcom as the weakest of the 28 (Broadcom rose 1.8% this week, one of only 2 chip stocks to gain). Qualcomm fell 5.1% this week and is 32% below its 52-week high, but still closes 3.6% above its 200-day average ($169.35). At 17.2 times expected earnings it trades below the typical chip stock's 25.8. It reports on Nov 4, after the close; options price a ±7.0% move (Oct 7 options prices) against ±7.5% on average after its last 4 reports.

Arm Holdings (ARM). Down 13.4% this week (-3.3% on Friday) and 41% below its 52-week high, it is still up 143.6% this year. It closed 1.3% below its 50-day average ($269.86) and 4.6% above its 150-day average ($254.67). At 86.9 times expected earnings it is the most expensive chip stock here. It reports on Nov 4, after the close; options price a ±9.1% move (Oct 7 options prices) against ±6.1% on average after its last 4 reports.

ASML (ASML). Down 4.7% this week but up 66.4% this year, ASML reports before the New York open on Oct 14 — the same morning as the September consumer-price report (CPI). Its US-listed shares (quoted in dollars here; the main listing is in euros in Amsterdam) closed at $1,780.34, 2.4% above its 50-day average ($1,738.61). Options price a ±4.0% move (Oct 7 options prices), above its ±2.4% average after its last 4 reports. Investors read its orders as an early guide to chip-equipment demand next year.

AI infrastructure — year to date

The companies that run AI computing — cloud giants, data-centre landlords and GPU renters — have risen far less than the chip makers that supply them this year (typical stock +8.6% vs +91.8%), which shows where investors think the profits are landing so far.

17 of the 30 AI-infrastructure companies are up since Dec 31. The GPU cloud providers lead (typical stock +164.1%; DigitalOcean +180.2%, Nebius Group +164.1%), while the Asia-Pacific group lags (-12.3%). Among the US cloud giants, Oracle (-27.5%) and IBM (-23.3%) are down; Meta Platforms, Microsoft, Alphabet and Amazon are up between 8.9% and 13.7%. This week the cloud giants held up (typical stock +2.2%) while former bitcoin miners turning to AI fell hardest (-11.5%).

Optics & networking

The companies that link chips and data centres together — optical parts, cables and network switches — were mixed this week: 10 of 20 rose and the typical stock moved -0.3%, led by Ciena (+14.9%), Ubiquiti (+5.9%) and F5 (+5.7%). Year to date the typical stock is up 67.4%, with Applied Optoelectronics (+214.5%) and Lumentum (+199.3%) in front.

AI infrastructure — valuation, earnings & signals

The latest quarterly filings show the AI build-out now costs some cloud giants more cash than their businesses bring in, which makes their Oct 28–29 reports and the cost of borrowing the two things to watch.

Microsoft, Alphabet, Meta Platforms and Oracle together spent $139.3B on buildings and equipment in their latest quarter. Alphabet (−$5.9B, quarter to Jun 30) and Oracle (−$5.4B, quarter to Aug 31) spent more than their operations earned, leaving free cash flow negative. On Aug 10, Nvidia and six financial firms announced financing platforms meant to raise over $500B for Nvidia's customers (Nvidia announcement) — the chip maker helping its buyers borrow.

Free cash flow = cash from operations minus capital spending. Contracted future revenue: revenue already signed but not yet delivered (reported as remaining performance obligations). Amazon's filing figures here carry no capital-spending line; they show $13.6B of new debt in the quarter, $10.8B after repayments. Oracle and Nvidia have filed a newer quarter since last week (to Aug 31 and Jul 26); Nvidia is the supplier, shown for comparison.

Same measures as the chip table above. “Loss expected”: analysts expect a loss next year, so there is no meaningful P/E. The data-centre landlords are property trusts usually valued on cash flow rather than earnings, so their P/E reads high.

Trend check at the Oct 9 close: 11 of 30 AI-infrastructure companies with enough history sit above their 200-day average, against 16 of 20 in optics & networking and 21 of 28 in chips. The clearest crossings in the five sessions to Oct 9: Applied Optoelectronics, CoreWeave, Hut 8, Nebius Group, SiTime and IREN fell below their 50-day average; Corning, Amazon, DigitalOcean, Alphabet, Nokia and Cisco climbed back above their 50-day average; Hut 8, Corning, Coherent and Equinix fell below their 150-day average; Ciena, Lumentum, MACOM and Viavi saw RSI turn down from above 70.

Earnings ahead

Between Oct 14 and Oct 30, 29 of the chip, AI-infrastructure and optics companies in this report publish results — the first real test of this year's gains against actual orders and profits.

ASML opens the season on Oct 14, followed by TSMC (the world's largest contract chip maker) and Ericsson on Oct 15. The busiest stretch is the week of Oct 26–30, with 21 reports, including Microsoft, Alphabet and Meta on Oct 28 and Amazon, Intel and SanDisk on Oct 29. The boards cover only US-listed companies worth $10B or more; ±% is the move options traders expect, where available.

US clocks go back one hour on Nov 1, so the placeholder times on later dates no longer say whether a report comes before the open or after the close: 16 such dates without a confirmed time are marked “Time tbc”.

Not on the boards: 20 companies in this report have no report date in the earnings calendar used here, which covers US-listed companies worth $10B or more — AEHR, KLIC, CAMT, SIMO, RIOT, WULF, CORZ, CIFR, APLD, GLXY, IOS.DE, MRL.MC, 018260.KS, NTTYY, NXT.AX, GMG.AX, GDS, TCEHY, 300442.SZ, CIEN. Dropped as stale: the Defiance Connective Tech fund (FIVG, last trade Jul 17).

Scenarios

Three ways the next four weeks could go for chip stocks, each tied to a level in this week's data — conditions to watch, not forecasts.