MW Why it's time to start discussing semiconductors like commodities: There may be a supercycle

By Barbara Kollmeyer

Ned Davis Research says computing power and chips have been integrated into the economy

Advanced chips are here to stay, says Ned Davis Research, and that may mean a supercycle is coming.

The charge into chips by investors has been something to behold. Running underneath the frenzy and a nearly 80% year-to-date gain for the PHLX Semiconductor Index SOX is the argument that the artificial-intelligence build-out needs advanced chips, perhaps more than the industry can supply.

That hasn't assuaged concerns among some that a dot-com-style bubble may be building, especially given the sharp run-up. A May survey by Bank of America found that 73% of global fund managers view "long global semiconductors" as the most crowded trade, up from 24% the prior month, when long positions in chips were tied with oil.

Read: Micron investors are partying like it's 1987. Analysts say the stock still looks pretty cheap.

Our call of the day from Ned Davis Research strategist Pat Tschosik and analyst Philippe Mouls raises an opposing argument to the bubble view: that a supercycle may be starting for chip companies.

"Just the thought of suggesting we are in a semiconductor supercycle and not a bubble reminds us of the five most dangerous words in investing: 'it is different this time,' " they told clients in a note on Wednesday.

But to make the case that semis are not in a typical boom-bust cycle, their argument is that "compute power is becoming infrastructure like railroads, utilities and the internet."

They also see demand for chips no longer driven by PCs and smartphones but by AI models that will lead to exponential growth of that demand. That's as chip usage continues to expand - in robotics, humanoids, smart grids, defense systems, automotive and more. At the same time, leading-edge chip making will continue to face supply constraints due to capital requirements and the time needed to develop foundries, they said.

More rationale for a commodity-style supercycle? Threats of a boom-bust cycle have been reduced by increased orders from the hyperscalers. Finally, the strategists argued that companies will spend and invest more in chips as they get an increasingly greater return on investment from AI.

Tschosik and Mouls conceded that there's a bubble argument to be made, as well: that hyperscaler capex may eventually normalize, that profitability over AI will remain uncertain and that adoption may not go as fast as expected.

Demand may also need time to catch up with that extra datacenter horsepower, while macro cycles are still an important consideration. "Demand for PCs, smartphones, autos, robotics, etc. is still cyclical and subject to fluctuations in the economic cycle," they said.

Tschosik and Mouls said they see a decent chance that "we are more in a late 1990s internet build-out scenario and that overbuilding feels inevitable." They noted that the S&P 500 Semis & Semi Equipment grouping's 45% rally in 30 days was something that also happened in 1998, 2001 and 2002. The 1998 case they view as most relevant, and that bubble burst two years later.

Whichever side of the argument an investor is on, the Ned Davis team said determining the peak will be crucial. And the difficulty of identifying that level lies in the fact that fundamentals tend to look good even after stock prices top. For example, worldwide semiconductor billings growth peaked in August 2000, six months after the late March 2000 dot-com-era peak for stocks, said the pair.

"We have specific things we are looking for at the top like a high percent of companies that meet our bubble definition, slowing capex guidance from the hyperscalers and a weakening in memory stocks (Micron, SK Hynix, Samsung).

"However, the most alarming signal we know of is when companies report exceptional earnings results and the stocks have a sharp negative reaction. That was clearly not the case this quarter, but we remain on high alert."

The markets

U.S. stock futures (ES00) (YM00) (NQ00) are dropping, as oil prices (CL.1) (BRN00) climb more than 3% and the 10-year Treasury yield BX:TMUBMUSD10Y is rising after three days of declines.

   Key asset performance                                                Last       5d      1m       YTD     1y 
   S&P 500                                                              7520.36    1.18%   5.39%    9.86%   27.71% 
   Nasdaq Composite                                                     26,674.73  1.54%   8.11%    14.77%  39.65% 
   10-year Treasury                                                     4.497      -7.60   12.20    32.50   7.30 
   Gold                                                                 4388.5     -3.43%  -5.34%   1.30%   31.29% 
   Oil                                                                  90.5       -7.65%  -14.14%  57.64%  48.56% 
   Data: MarketWatch. Treasury yields change expressed in basis points 

The buzz

The U.S. launched fresh strikes on Iranian targets. Iran said it retaliated against a U.S. base.

Snowflake's stock (SNOW) is surging nearly 40% after forecast-beating results from the cloud software company.

Marvell shares $(MRVL)$ are dropping despite an upbeat earnings report and revenue outlook for the custom-chip maker.

Can Salesforce (CRM) buck AI disruption? Mixed results didn't offer much guidance, and shares are falling.

Dollar Tree $(DLTR)$ is surging toward its best day in four years after the full-year profit outlook was raised.

s and announcing a new partnership with DoorDash.

Costco $(COST)$, Dell $(DELL)$ and Autodesk $(ADSK)$ report quarterly results after the close

The Fed-preferred inflation metric, the April personal-consumption-expenditures index, is due at 8:30 a.m., along with the second revision to first-quarter GDP and data on weekly jobless claims and durable-goods orders. New-home sales for April are due at 10 a.m.

New York Fed President John Williams will speak at 8:55 a.m., the first of several regional central-bank officials due to speak.

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The chart

JPMorgan strategist Nikolaos Panigirtzoglou offers this chart showing how bitcoin and gold exchange-traded funds have seen two weeks of outflows. To him, that's a sign that investors have moved on from the debasement trade he spotted in financial markets in October. That trade involved a shift out of currencies and into gold, silver and bitcoin on worries that governments are spending more and not curtailing debt.

Top tickers

These were the most-searched ticker symbols on MarketWatch as of 6 a.m.:

   Ticker  Security name 
   NVDA    Nvidia 
   TSLA    Tesla 
   MU      Micron 
   TSM     Taiwan Semiconductor Manufacturing 
   AMZN    Amazon 
   AMD     Advanced Micro Devices 
   SNOW    Snowflake 
   MSFT    Microsoft 
   GME     GameStop 
   NBIS    Nebius 

Random reads

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$40 million in gold bars found in ex-CIA official's house.

Beyond the headlines

MarketWatch Picks: 'That's dead money right now.' As inflation hits a 3-year high, here's how financial advisers are fighting it in their own portfolios

-Barbara Kollmeyer

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May 28, 2026 07:45 ET (11:45 GMT)

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