Semiconductors: the bubble nobody wants to pop
The semiconductor sector has risen 22% in a month, but sky-high valuations and geopolitical risk are fueling fears of a violent correction.
English · Original discussion in Spanish · Published
Chips without a ceiling: how long can the semiconductor rally last?
May 2025. As the semiconductor sector racks up week after week of record highs on the Nasdaq, the debate over whether we are facing a bubble or a structural shift is intensifying. The numbers are dizzying: since May 9 alone, the sector index has climbed more than 22%, driven by the artificial intelligence frenzy, military demand and the electrification of the economy. But June brought the first warning: a 15% drop in two days that set off alarm bells among investors.
Real demand or speculative mirage
The optimists argue that this is nothing like the dot-com bubble. Chip demand is tangible: from AI supercomputers to laser weaponry, not to mention electric vehicles and IoT devices. Companies like TSMC and ASML enjoy nearly unassailable competitive advantages. "Everything runs on chips today," they argue, and AI would be driving GPU and HBM memory consumption to unprecedented levels. On top of that, defense spending and global digitalization add layers of demand that appear structural.
However, share prices already price in several years of growth. NVIDIA is worth more than entire economies, and its multiples are hard to justify even under the most optimistic scenarios. "It's not that semiconductors aren't useful, it's that current demand is speculative, fueled by the AI companies' own bubble," the skeptics point out. If large language models start showing diminishing returns, GPU orders could collapse.
Geopolitical risk as the trigger
Another weighty factor is geographic concentration. Taiwan produces most of the world's most advanced chips, and any tension in the strait could cut the global supply chain. "One missile in Taiwan and goodbye supply chain," some analyses sum up. The geopolitical risk premium is not priced into current valuations, which seem to ignore any adverse scenario.
Add to this the dependence on a handful of companies with pricing power. ASML, with its monopoly on EUV machines, and TSMC, with its manufacturing leadership, are bottlenecks that can sustain margins, but also single points of failure. If AI demand cools, the adjustment would be brutal.
Correction or collapse: what the numbers say
Recent history shows this sector dances to the tune of violent cycles. In 2022, NVIDIA and AMD fell more than 60%. Those who argue this is no bubble point out that revenue is real, unlike the dot-com era, but today's prices already embed expectations that may prove excessive. Some investors have already begun taking profits and setting stops, which could trigger a spiral if panic spreads.
The consensus among the more cautious is that, whatever happens, there will be 30-40% corrections along the way. The question is not whether it will fall, but when and from what level. SpaceX, OpenAI, Anthropic and other IPOs planned for late 2025 and 2026 could act as a catalyst for further gains or, on the contrary, mark the ceiling of the euphoria.
For now, the sector is riding the momentum. But stock market history shows that when everyone is convinced they have to jump on the train, the conductor is usually thinking about retirement.
May 2025. As the semiconductor sector racks up week after week of record highs on the Nasdaq, the debate over whether we are facing a bubble or a structural shift is intensifying. The numbers are dizzying: since May 9 alone, the sector index has climbed more than 22%, driven by the artificial intelligence frenzy, military demand and the electrification of the economy. But June brought the first warning: a 15% drop in two days that set off alarm bells among investors.
Real demand or speculative mirage
The optimists argue that this is nothing like the dot-com bubble. Chip demand is tangible: from AI supercomputers to laser weaponry, not to mention electric vehicles and IoT devices. Companies like TSMC and ASML enjoy nearly unassailable competitive advantages. "Everything runs on chips today," they argue, and AI would be driving GPU and HBM memory consumption to unprecedented levels. On top of that, defense spending and global digitalization add layers of demand that appear structural.
However, share prices already price in several years of growth. NVIDIA is worth more than entire economies, and its multiples are hard to justify even under the most optimistic scenarios. "It's not that semiconductors aren't useful, it's that current demand is speculative, fueled by the AI companies' own bubble," the skeptics point out. If large language models start showing diminishing returns, GPU orders could collapse.
Geopolitical risk as the trigger
Another weighty factor is geographic concentration. Taiwan produces most of the world's most advanced chips, and any tension in the strait could cut the global supply chain. "One missile in Taiwan and goodbye supply chain," some analyses sum up. The geopolitical risk premium is not priced into current valuations, which seem to ignore any adverse scenario.
Add to this the dependence on a handful of companies with pricing power. ASML, with its monopoly on EUV machines, and TSMC, with its manufacturing leadership, are bottlenecks that can sustain margins, but also single points of failure. If AI demand cools, the adjustment would be brutal.
Correction or collapse: what the numbers say
Recent history shows this sector dances to the tune of violent cycles. In 2022, NVIDIA and AMD fell more than 60%. Those who argue this is no bubble point out that revenue is real, unlike the dot-com era, but today's prices already embed expectations that may prove excessive. Some investors have already begun taking profits and setting stops, which could trigger a spiral if panic spreads.
The consensus among the more cautious is that, whatever happens, there will be 30-40% corrections along the way. The question is not whether it will fall, but when and from what level. SpaceX, OpenAI, Anthropic and other IPOs planned for late 2025 and 2026 could act as a catalyst for further gains or, on the contrary, mark the ceiling of the euphoria.
For now, the sector is riding the momentum. But stock market history shows that when everyone is convinced they have to jump on the train, the conductor is usually thinking about retirement.
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Summary of a discussion on Burbuja.info - Foro de economía, actualidad y política., translated from Spanish and reviewed before publication. Read the full discussion (75 replies).
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