Faith in the artificial-intelligence trade is faltering, but one analyst sees reasons to remain upbeat.

Semiconductor stocks are clearly "suffering a crisis of confidence," Bernstein analyst Stacy Rasgon said in a note on Monday. Despite rising 50% on the year as of Friday's close, the PHLX Semiconductor Index had fallen 30% from its highs in June.

Within the index, makers of semiconductor equipment and central processing units, which have experienced stellar growth so far this year, have suffered the most recently as investors continue to question the sustainability of AI spending, the analyst noted.

Perhaps the most telling sign investors have grown weary of the AI trade is that chip stocks have undergone "sharp multiple compression," Rasgon said, referring to valuations shrinking despite expectations for earnings to continue growing. The PHLX Semiconductor Index was trading at about 16 times estimates for forward earnings as of Friday's close, versus 28 times at its peak close in June, according to Dow Jones Market Data.

The recent selloff in chip stocks followed a slate of earnings results from big cloud companies, which pointed to continued strong spending on AI infrastructure against dwindling cash flows. Still, investors are worried about delays in the buildout, Rasgon said, while concerns are also growing over the rising levels of debt companies are taking on to fund their AI ambitions.

"The stocks are clearly telling us that investors are getting worried about sustainability of demand, wondering about returns and doubting more and more about where the funding might be coming from to support the (very strong) forecasts that have been offered up by many companies in the space," Rasgon wrote.

In his view, however, the earnings reports from major cloud-services providers support the idea that the AI trade has more room to run. While some big cloud companies noted lighter spending in the near term, Rasgon said all the cloud providers have either kept or raised expectations for spending this year, "and all appear to expect significant acceleration as we move into next year."

Even Intel, which saw its stock fall 29% Friday after its Thursday earnings report to wipe out $140 billion in market capitalization, flashed a good sign for the AI trade, Rasgon said. Investors were disappointed in the chip maker's outlook for the December quarter, which came in below expectations partly due to ongoing weakness in the market for personal computers.

But Intel's data-center and AI business delivered strong performance, Rasgon noted. That segment includes its data-center CPUs and custom networking, which are in high demand as agentic AI adoption takes off.

Intel's client-computing group, which includes its PC chips, isn't weak due to issues with demand, Rasgon said, but rather rising memory prices that are slowing down shipments - and those increases are due to insatiable AI-driven demand for memory chips.

Meanwhile, analog-chip names, which mostly serve the automobile and industrial markets, have outperformed the broader sector "as overall AI sentiment has soured," Rasgon said. And shares of Nvidia and Broadcom, which have traded at more of a discount, have also fared better than peers - likely helped by those lower valuations, he added.

For now, Rasgon said he's focused on Nvidia and Broadcom, which he views as the main drivers of the chip trade. He's also upbeat on semiconductor-equipment makers, which are due for multiyear growth as the data-center buildout continues.

Rasgon said he's also encouraged by Advanced Micro Devices (AMD), which mainly competes with Intel in the CPU market and with Nvidia in the market for graphics processing units - though he noted it also faces challenges in the PC market.

AMD reports quarterly earnings on Tuesday afternoon.