October 6, 2025

QuickTakes

Another Day Of AI Fun

In The Sun For Semis

Semiconductor stocks have certainly benefited from the AI boom. All those data centers being built will be filled with chips (chart). All those autonomous-driving vehicles will also be stuffed with chips, and so will humanoid robots. And they will all generate more data that will need to be processed.

Today's AI winner was AMD. Shares of the chipmaker soared after the company announced a multibillion-dollar deal with OpenAI, closing out the day's trading session up more than 23%. The move will see AMD provide upwards of 6 gigawatts of GPUs to OpenAI over several generations, starting with its MI450 chips in H2 2026.

Is the semiconductor industry no longer cyclical? That is the verdict of the stock market, where the S&P 500 Semiconductors industry is trading at a forward P/E of 30.0 (chart). Following the Great Financial Crisis (GFC) until the onset of the Great Virus Crisis (GVC), this valuation multiple fluctuated mainly between 10.0 and 15.0. The industry's forward earnings per share mostly rose during this recession-free period, but it experienced cyclical dips along the way.

The same can be said for the forward revenues per share of the S&P 500 Semiconductors industry (chart). It rose between the GFC and GVC, but was prone to cyclical dips. Since the GVC, there was a significant downturn in 2022. However, it has been a solid uptrend for forward revenues in record-high territory since OpenAI introduced ChatGPT in late 2022.

The same can be said for the forward earnings of the S&P 500 (chart).

Contributing to the cyclical volatility of forward earnings has been the rollercoaster ride in the forward profit margin of the S&P 500 Semiconductors industry (chart). It has been rising relentlessly to new highs since early 2024, reaching a record 41.2% in early 2024.

Nevertheless, we doubt that the industry is no longer cyclical. Competition is bound to increase over the next couple of years. That will depress the industry's profit margin, at least on a cyclical basis. We will be on the lookout.

Finally, the Semiconductor Industry Association reports that worldwide semiconductor sales rose to a new record high in August.

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