Chip Stocks Are On Fire — Will It Last?

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1:41Money market's mad. If money is evil, then that building is hell. The show goes on! The folks are never watched the show sale! Welcome to Prof G Markets. I'm Ed Elson. It is July 1st. Let's check in on yesterday's market vitals. The major indices climbed as stocks closed out their best quarter in six years. The Dow finished its best first half since 2021, and the Russell 2000 wrapped up its best first half since 1991. Meanwhile, Brent crude was roughly flat on the day as investors awaited news from talks in Iran. The yield on 10-year treasuries climbed as job openings data showed a stable labor market.

2:24And finally, Bitcoin dipped below$60 ,000 once again. OK, what else is happening? Semiconductors just posted their best quarter ever. The Philadelphia Stock Exchange Semiconductor Index rose 82 % in the second quarter and is up 94 % so far this year. Western Digital is up 240%. Year-to-date Micron is up 310%. Sandisk is up more than 700%. But the rally hasn't been entirely smooth. Last week, chip stocks fell 8 % in their worst week since April 2025. But that isn't saying that much. Still, the stunning run-up and the turbulence along the way leaves investors with one big question, And that is, how long can this semiconductor boom actually lost?

3:16Joining us to help answer that question, we are speaking with Stacey Rasgon, Senior Analyst at Bernstein. Stacey, thank you so much for joining us on the show. This has been just a crazy run-up that not many people predicted. I mean, AI is winning, but not everyone in AI is winning. Big tech certainly isn't. but the semiconductor stocks are we'll get into how sustainable this actually is but first just your reflections on what's been a crazy quarter you bet and and i mean semis have been the primary beneficiary here and as as you said the socks index is up almost 100 actually may even be 100 percent um after today's close a year to date and ai has just gotten so big it's dragging everything along in the space you could have almost owned anything you would have been just fine it's interesting though some of the divergences we've seen this way so that the traditional sort of like like um uh blind ai winners that you would think the nvidia's and the broadcoms of the world that are doing you know the the actual ai accelerators they've actually had the worst performance you know they're they're up but but they're up not anywhere near as much as the sector and the reason is people have been playing the so-called bottlenecks um again as ai has grown like sort of one area of the space at a time followed by the next you've been sort of hitting the limits of what they can supply and then prices go up and you know semi-investors love to play bottlenecks and so the stocks have gone up and you know we went from the accelerators to to the memory to the semi-cap to the optical to the networking to the power semis to the cpus now now people are playing discreet and other things um it's really been kind of remarkable overall though you could have owned almost almost anything in the space um uh year today you would you would have been sitting pretty pretty.

5:00Yeah. Semiconductors now make up a fifth of the S &P. Is it that much? Wow. Which I just find stunning. 20 % of the entire market. I mean, when you look at that divergence between sort of the obvious AI names and the less obvious AI names, and I think that is a pretty good distinction as to who's been winning in this market and who hasn't, at least in 2026. I mean, is that just investors speculating, having a lot of fun with these more obscure names? I mean, why are they so excited about a random name in a bottlenecked up sector versus like, you know, NVIDIA? You know, it really has been about earnings.

5:44And frankly, even with the space up 100 % year to date, you sort of like decompile it into the drivers, you know, probably 70 % plus of that performance. has actually been earnings growth. So like multiples in the space are up. And I won't say that like the space overall is expensive, but it's not egregious. And by far and away, the earnings so far year to day have grown much more than the valuations have. And some of these bottlenecks, we've just seen massive revisions. I mean, take memory, for example. I don't cover the memory space, by the way, it's a colleague of mine, but to talk about the industry rather than the stocks, I mean, we've just seen some phenomenal positive revisions in the earnings powers.

6:20You know, memory prices have just gone through the roof. through the roof as supply has gotten really tight as AI has grown. And it's just driving massive revisions in the audience. We're seeing that among a number of the bottlenecks. I think for some of the other ones, there's the hope or the strong belief that numbers as strong as they are right now are just too low, given where AI demand is growing. And again, you can look at Semicap or maybe some of the optical names or some of the other ones that are playing out right now. You can just look out at where people are forecasting demand to be, and you can see where the numbers are sitting right now.

6:55And it's clear that one of those things is wrong. Like, either the demand is not going to be there or numbers broadly probably still need to come up, and in many cases across the board. And that's why you've seen some of these other names respond. And so I don't know that it's necessarily unjustified. Again, I wonder why some of the other compute names haven't performed as well, because, again, numbers there, I think, are going up too. But I think maybe they're more well-known or more heavily anticipated that you will see that kind of performance. And again, there's only so much money to go around, right?

7:28Investors have to invest in something. And I think there's been a belief among the more traditional guys that they're safer. You can use them as a source of funds in some sense to play some of these more other esoteric names. Because you know numbers, at least for the big guys, are going to go up anyways. There's less risk from doing that. So we've just seen some of the funds shift into other areas, I think. It seems like one of the most important questions for semis and therefore for the entire market, because they make up a fifth of the entire market, is will this last? Specifically, these incredible earnings, which are largely a result of huge demand leading to huge prices.

8:09And the question then becomes, is this a one-off? Is this cyclical? Which is a big question in the semis business. or has something fundamentally changed and our earnings just going to skyrocket or at least be at this level forever? What do you think? Probably there's some elements of truth from all of those things. Like semis, I think, are cyclical and they always have been and they probably always will be, but there's a variety of different types of cycles and different durations. And like, you could argue that this cycle has duration. And let's take the memory space, for example. And that's probably one of the areas where you've seen the biggest price increases as well, which is driving all this.

8:43But the reason is, as you said, the demand is very strong and supply is very tight. And, you know, this time is different is always sort of a dangerous statement, but there are some things that are different. Take the DRAM space, for example. Like DRAM is, like in your PC, it's like the system memory that's running things as you're working. And AI uses a specific type of DRAM memory. They call it HBM, or it stands for high bandwidth memory. And it sits on the AI chips that get sold. But to make, say, a gigabyte of high bandwidth memory takes four times as much capacity versus making a gigabyte of like the standard, what would be called DDR5 DRAM that would go into your PC or smartphone.

9:22So you're in a scenario where you could be adding, you know, wafer capacity to make DRAM for AI. And actually, even though you're adding a lot of wafers, you're not necessarily adding as many bits as you ordinarily would because of this differential in how many wafers. And I should call it a trade ratio. Right now it's like four to one between AI memory and traditional memory for DRAM. And so because of those dynamics, I mean, the other thing I should say is it takes time to add supplies. And one of the issues right now is we're short on what's called clean rooms. So to add supply, like there's a whole industry, it's called semiconductor capital equipment.

9:59They make the tools that make semiconductors. But before I can sell those tools and add capacity, I need to have somewhere to put them. You need what are called clean rooms. These are the buildings, right, that the factories, they make up the factories. and we're short clean rooms right now. So they have to build the clean rooms first and then you can add the tools and add the capacity. And it just takes time. I mean, like this year for total semiconductor manufacturing equipment, we'll probably do$145 billion, which is up 20 % year over year. So it's a strong year. But as strong as it is, it's a constrained year.

10:31The clean rooms don't come online until well into next year and beyond. In the meantime, demand is still growing. And so it's entirely plausible that this cycle, this upcycle could last quite a while. Are there any names? It sounds like you think that ultimately the growth is pretty justified given the fact that the earnings have been pretty staggering so far. So far. Again, I would say as long as AI demand continues, and I would say if AI demand does not continue, we're probably screwed. We'll put that aside. All the signs right now seem to be pointing to continued strong demand, at least for now.

11:08It's a very interesting question. It seems like the biggest question for investors, can you put that aside? Is it, I mean, do you build that into your model or do you ignore it and assume that this continues? How do you even grapple with that very big question? I'll say the same thing I've said since this started. At some point, will you see an air pocket? I mean, presumably you will. I mean, this is what always happens eventually. Only thing I can say is it's not now. It's certainly not this year. Okay. It really does not look like it's next year. On 2028, I don't know. You know, we'll have supply starting to come online in a bigger way in 28, and then it will be a question of demand.

11:47Why not this year or next year? Because some investors are concerned. There's no incremental capacity. Supply is tight and demand is very strong. That's not slowing down. You probably don't have to worry at all until supply starts to come on, like, in a big way. And then you'll see, you know, the tide will go up. We'll see if everybody's naked or not, right? And this actually happened, you know, it wasn't that long ago, a year, two years ago, when the actual accelerators, the GPUs were in very tight supply. And by the way, I would say semi-investors always worry because there's a phenomenon that happens in many cases when supply is tight and customers can't get what they want on the time frame that they want is that they order more.

12:23It's called double ordering, right? And so the question is always like when supplies to the right tight and demand is strong and you're adding capacity, is that demand you're adding for real or is it phantom, right? This happened during COVID. You know, we had big shortages and lead times stretched out and, you know, they added a bunch of supply. And as it turns out, like it wasn't needed and it took three or four years to actually work off that oversupply. On the other hand, you go back a year or two when the GPUs and the accelerators were in tight supply and that supply came on online in a bigger way.

12:52And actually demand as the supply came on, demand got stronger rather than weaker. That demand was real. Right. So that will be the question. We probably won't know the answer for a couple of years. in the meantime for the next year certainly for this year like i said and and almost certainly for next year supply is going to remain tight and in that environment you know the people will act like the demand is is going to be sustainable um so far though everything we've we've seen just points to everybody's short compute that that seems to be the the case and again it's not like people are reserving compute and just sitting on it like they're they're reserving the compute and using it.

13:28The computer is getting used. We can have a discussion on what's the ROI in return on that. I think that's a valid discussion that we can have. But the computer is getting used. And in fact, they want to be able to utilize far more compute right now than is currently available. Well, the ROI discussion is very interesting. I assume maybe your view is that discussion won't happen properly. It's already happening. Or at least for among the people who matter, in this case, the hyperscalers. I mean, it sounds like your view is... Oh, but it is happening. No, no, no, no, no. So it's... Investors are worried, right?

14:05Because the hyperscalers are investing a lot of money and they've sort of reached the limit of what their free cash flow can currently support. So they're topping the debt market. They're starting to raise some equity and like that kind of stuff. They still got plenty of capacity, but there is a worry that, oh, they're just investing. And people, for some reason, think that they're idiots. I actually don't know why. These are some of the smartest and certainly most largest and most profitable companies in the history of mankind. They can see things that we cannot. And I presume that they are not idiots, like that they have line of sight to return.

14:36I think that they're already seeing returns on some of the things that they're doing. You can look at some of the other things. I mean, you can look at, for example, GPU rental prices. You have like companies that are called neoclouds. Their business model is simply we have compute and we're renting it out. We're seeing those rental prices going up. we're seeing five-year agreements on that capacity that are coming to an end and that existing capacity which at this point is fully depreciated is now getting rented out at even higher prices right so those returns look just fine you can look at other companies like anthropic for example who actually like has a an agentic they do agentic coding it's they have a product called clod that people are willing to play pay for their revenues have gone vertical they're doing i can't remember what the number is now 62 billion dollars in annualized revenue something like that A month ago, it was like$44 billion.

15:21And a month before that, it was$30 billion. And in January, it was like$14 billion. And in December, it was$9 billion. And a year ago, it was$1 billion. And the revenues have gone like this. I think the question for the ROI, people are concerned about the ROI, though, is that are the businesses that are using, paying all that money for Claude, are they seeing ROI on their investment into Claude? It seems as though it goes one step further. Presumably, they are, right? Like I said, there are more and more companies that are doing it. Again, this is the problem. It's hard to know on an individual basis at the end customer level, like what kind of return they're seeing and what kind of return they're not.

15:59All I can tell is that the supply of that computer, like the anthropics of the world, the demands on their capacity that they are seeing right now have gone vertical. So that is strongly suggestive that somebody is seeing a return on this someplace. Stacey Rasgon, Senior Analyst at Bernstein. Stacey, really appreciate your time. Thank you. Oh, you bet. My pleasure. After the break, Comcast is breaking up. And for even more markets insights, you can subscribe to my weekly newsletter, Simply Put, at simplyput.profgmedia.com.

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18:44We're back with Prof G Markets. One of the world's largest media conglomerates is officially splitting up. On Monday, Comcast announced plans to complete a spinoff of its media properties. The newly formed company will include Universal's film and television studios, its theme parks division, its broadcast networks, and its streaming business. What's left behind, the broadband, the Wi-Fi, and the cable connectivity businesses, will continue to operate under the Comcast umbrella. The stock is up more than 5 % on this announcement. So to break down this decision from Comcast and why they're doing this, we are speaking with Rohan Goswami, business reporter at Summer4.

19:28Rohan, good to see you. This is a development from a previous spinoff that we also saw, so it all gets a little confusing because last year they spun off, let's see, MSNBC, CNBC, the Gulf Channel, all of these cable networks, which were under the company Versant, and now they're doing it again, but with more of their media assets. Why are they doing this? What is going on here? The uncharitable view, which Comcast would disagree with, is that they tried to take a baby step getting rid of those cable assets, and the market just didn't care. Because if you think about what the fast-growing businesses were 15 years ago, they were cable assets.

20:07When Comcast picked up NBCU from General Electric back in, I want to say 2014, 2015, for around$30 billion, it was, by some accounts, the deal of a lifetime. It was one of the greatest seminar deals ever struck because Comcast just knew how to run these businesses better than GE did. And for a long time, they were the engine behind Comcast's sort of meteoric, certainly stock price growth. And as we know, that has stalled. Ed, you and I like to go on TV, but I don't think either of us would ever make our living going on TV because it's a declining business. No one watches TV anymore. That's true.

20:40They tried to spin off first. That obviously worked for a bit, right? But now they've taken this much more dramatic step. And it's seen in a lot of quarters, if you look at the stock price performance of Charter, right, Comcast's chief broadband rival, it's seen in a lot of quarters as a prelude to more M &A, NBCU buying or being bought. Comcast, similarly, is widely expected to go after Charter Communications, which itself is trying to buy or has bought Cox Communications. we are in what John Waldron told us was sort of an era of endgame consolidation, where everyone is just buying everyone in an effort to get as big as possible before they're stopped by the next administration.

21:18Just looking at how these stocks have performed since the Baby Step spinoff, i.e. Versant Media, Comcast itself is down nearly 15 % since that happened, and Versant is down nearly 25%. Now, my understanding was the idea is that when you're sort of conglomeratized, you pay this, what we kind of call a conglomerate tax, which is all of the sexier properties get lumped in with the unsexy properties. And if you can separate those out, then maybe you get a more attractive multiple on one of the other stocks. The stocks have both gone down. So I guess my question is, why do they think this will work?

22:01Or are they just sort of crossing their fingers? It's a complicated question. So to go back to sort of the prototypical, the archetypal conglomerate, it was General Electric. And Jack Welch's argument and Jeff Immelt, his successor's argument, was that the size and scope of these business creates a smoothing effect. If, say, your engine manufacturing business isn't doing well, increased ad sales from NBCUniversal make up for that gap. It allows what Jack Welch called predictable earnings, what some called earnings manipulation, but generally was seen as a more consistent, reliable producer of cash flow.

22:35But investors kind of realized in recent years they can do that themselves. They can build their own conglomerates using index funds, using any any number of ETFs where they didn't need a corporate back office to be architecting it. That's generally the argument for why conglomerates have almost uniformly broken up. There are very few true historic conglomerates left. What's happening with Comcast is a little bit different. So to rewind the clock, broadband was seen as sort of the fastest growing backbone of a lot of these companies. If you recall, Time Warner Cable was a massive deal for Comcast, Comcast itself, Charter, Cox, Altice, all of these businesses took on a lot of debt to build out the fiber optics that actually power the internet that allows you and I to talk to each other from across Manhattan.

23:15And in doing so, they were making a bet that growth would continue to be sort of unflappable, right? Everyone needs to be on the internet. More and more people want faster and faster internet. That was why you saw Comcast and Charter's shares surge during the pandemic, as obviously more and more people flocked to upgrade their internet speeds, to rely on the internet more. And then what changed was the mobile companies started to step in. So the AT &T's, the Verizon's, but really the T-Mobiles, right? They really started to compete aggressively for home internet using these 5G networks that, of course, are ubiquitous and we rely on for our phones.

23:47That led to slowing growth in what was the growth engine for Comcast after linear started to decline, the cable or the broadband business itself. And so earlier this year, Charter and then Comcast both warned that they were seeing slowing growth, outright declines in customer acquisition and revenue in their core engine. And investors just freaked out, right? The stock re-rated, I want to say double digit drop for Charter and Comcast in the course of a week. And so you have two businesses here that are fundamentally challenged right now. You obviously have the studio business, which will be significantly smaller than what they paid for NBCU by any metric, but you also have a really challenged broadband business that is sort of fighting to keep and retain customers by any means possible.

24:29So yes, while there is sort of a conglomerate tax that you pay and unstructuring that conglomerate should theoretically lead to a better multiple to multiple expansion, what's happened here is you can't really put lipstick on a pig when the pig is drowning in mud, and that's both of these businesses here. It's a really interesting point. I mean, you've got broadband, which is you're saying is is is struggling itself you've got the cable channels which are obviously struggling over at versant you've got some of the more traditional media production studios like you know universal pictures dreamworks etc which i don't think people are feeling very bullish on i mean i don't think anyone's very unless you're david ellison uh peacock maybe but we also know that it's still losing money itself?

25:19I mean, are there any assets in this business that Wall Street looks at and goes, I want a piece of that? Not the way that investors are looking at assets right now. We have gone from sort of a very conservative shepherd your cash mentality coming out of the tech boom into a, we are once again rewarding growth. And neither of these businesses are fast growing or predictably growing businesses. Now, Comcast for years has said that profitability for Peacock is just around the corner. That, of course, has not materialized. Mike Cavanaugh, the now co-CEO of Comcast, who will lead NBCUniversal, the spinoff, again reiterated that on the call with investors earlier this week.