Author: Rita
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Bernstein published its quarterly semiconductor industry review on June 23. Core view: AI has become the "only game" for the semiconductor sector, with strong fundamentals, but valuations and crowding are at historical highs. The report also recommends NVDA and AVGO (rated "Outperform"), believing that although they have relatively underperformed this year, they are the most core beneficiaries in the AI supply chain, and current valuations are "absurdly cheap". Upgraded AMD, but remains cautious on QCOM due to pressure on its mobile business.
AI Demand Drives Record Gains in Semiconductor Sector
The Philadelphia Semiconductor Index (SOX) has risen 155.6% over the past year and is up 106.6% year-to-date. Over the same period, the S&P 500 rose only 9.2%. The premium of SOX relative to the S&P 500 reached 62%.
This rally is driven by fundamentals, not a bubble. Bernstein's data shows that the forward EPS of SOX has increased by 75% from the beginning of the year, with valuation expansion itself being only a small part.
The divergence within the semiconductor sector has reached an exaggerated level. From the beginning of the year to June 22, memory chips rose 500%, CPUs and optical solutions each rose 220%, while GPUs and ASICs rose only 115%. The entire AI supply chain is making money, but the parts that make money and the degree of profitability are not uniform. The farthest upstream and downstream of the supply chain benefit the most; building new production lines requires memory and semiconductor equipment, where supply is relatively tight. GPUs rose only 115%, despite NVDA holding the vast majority of the AI chip market share.
Actual Purchasing Power Under High Valuations
The forward P/E of SOX is now 34.1x, compared to 21.0x for the S&P 500, a premium of 62%. This sounds expensive, but look at specific companies: NVDA's adjusted EPS expectation for 2026 is $9.19 and $12.52 for 2027. Based on Bernstein's price target of $315, the 2027 P/E is 25x, while the sector's forward P/E is 34x. NVDA is not the most expensive; it's relatively cheap.
Bernstein analyst Stacy Rasgon used the phrase: "absurdly cheap".
His reasoning is straightforward: NVDA's Blackwell chip series is expected to reach a $1 trillion revenue scale by 2027. The situation with AVGO is similar, with a price target of $550, but if it reaches its $100 billion AI-related revenue target by 2030, the current valuation looks very cheap.
This is why Bernstein rates both companies "Outperform". Although they have underperformed this year, they are the most core links in the AI demand chain. For comparison, Apple's forward P/E is about 28x, Microsoft's is about 30x, while NVDA's is 25x. Considering the continuity of Blackwell and Rubin generations, and AVGO's monopoly in switch chips, these valuation discounts appear extremely unreasonable. The market has ignored a core fact: without NVDA and AVGO chips, the entire AI infrastructure cannot operate.
CPU's Dual Story, QCOM's Single Dilemma
AMD was recently upgraded by Bernstein to "Outperform". The reason for the upgrade? Because AMD has opportunities not only in AI/GPUs but also in the proxy AI trend for CPUs. CPU shipments improved quarter-over-quarter in Q1 2026, slightly exceeding PC shipments. Bernstein believes AMD's fundamentals are strong enough to support reaching $20 in EPS by 2028, and the current stock price still has room to rise relative to this target.
QCOM is stuck in a single dilemma. Smartphone shipments fell 3% year-over-year in Q1 2026, and rising memory chip prices mean higher phone costs, which is negative for chipset suppliers' pricing power. Bernstein admits that downgrading QCOM earlier was a "poor decision" but maintains a "Market-Perform" rating. The problem is that the weakness in consumer electronics is a given, and QCOM finds it difficult to find a new growth engine. Even if a new data center story can be told at a future analyst day, compared to AMD's dual drivers and the structural position of chipmakers, QCOM's story lacks conviction.
Realistic Considerations for Sub-sectors
Semiconductor equipment (AMAT, LRCX, KLAC) continues to be favored, with demand for capacity construction remaining strong. All three companies are rated "Outperform", with target price increases ranging from 30% to 70%.
The situation for analog chips (ADI, TXN) is more complex. They are indeed in a recovery cycle, achieving double-digit growth for over a year consecutively, but the data center business share remains small, about 10%. TXN and ADI have P/Es of 30 to 40x, appearing quite expensive. Bernstein gives both a "Market-Perform" rating, choosing to wait and see.
Two Risks: Crowding and Inventory
Bernstein's industry sentiment indicators show that the crowding level of the semiconductor sector is already at a historical high. Days of inventory have risen again, far above the upper limit of the normal historical range; while channel inventory has decreased somewhat, it remains above average levels. What does this mean? It means that if any signs of weakness appear in downstream demand, the entire supply chain will face pressure for active inventory reduction. PCs and consumer segments have already shown weakness, and phones have declined year-over-year. Once inventory pressure spreads to data center procurement, the threat of price wars becomes real. At that point, the pricing power of companies near the bottleneck (NVDA, AVGO) could be severely weakened.
The strength of AI demand is undeniable, but the current high valuations of the semiconductor sector have already priced in this good news. Although NVDA and AVGO are relatively cheap, it's conditional on believing they can achieve the analysts' targets. AMD's story is attractive, but execution risks also exist. QCOM has become a forgotten character with unclear catalysts. Bernstein's stance is selective bullishness; at this point, stock selection is more important than getting the direction right.
Disclaimer
This article is TideResearch's collation and interpretation of a third-party brokerage research report. The ratings, price targets, earnings forecasts, and related judgments cited in the article are the views of Bernstein analysts, representing only the stance of their institution. They do not represent the views of TideResearch and do not constitute any investment advice.
Please note three points when reading: First, price targets are analysts' expectations for approximately the next 12 months; they are forecasts, not promises, and will be adjusted repeatedly with performance and market conditions. Second, sell-side research reports are inherently bullish, and some covered companies may have investment banking relationships with the brokerage. Third, the value of a research report lies in its mainline logic and underlying assumptions, not just a single price target. Focus on the logic, not just the price.
The market carries risks, and decisions must be independent. This article should not be used as a basis for buying or selling any securities.
Data Source: Bernstein Report (Stacy A. Rasgon et al., June 23, 2026) · Public Market Data
TideResearch · 2026 June
