Chip stocks frenzy is still accelerating.

The semiconductor sector is currently experiencing a rare wealth feast. In the past six weeks, the market value of semiconductor component stocks in the S&P 500 Index has increased by approximately $3.8 trillion, a sharp rise that even seasoned investors cannot help but exclaim as "somewhat surreal." (The semiconductor index has been strong since April) The core logic driving this round of market is the nearly endless demand for computing power from AI companies, a demand that has spread from AI-specific chips to memory chips, traditional CPUs, and other more widespread semiconductor categories. Major chip manufacturers have just released impressive first-quarter financial reports and have given more optimistic full-year outlooks. Intel Corporation's cumulative increase this year is 239%, SanDisk is up 558%, and the major stock indexes in South Korea are close to doubling from their recent lows. Balancing between "the last half hour of the party" and guarding against the tide turning is becoming the most crucial issue in the market. AI demand overflowed, and the entire category of chips entered a prosperous cycle. The narrative logic of this wave of chip stocks changed significantly earlier this year. For years, investors' enthusiasm has mainly focused on GPUs used to train and run generative AI models, while traditional CPUs have been almost forgotten by the market. But as Anthropic's latest AI model gained market recognition for its powerful autonomous agent capabilities, the demand structure of AI applications changed. AI agents can run around the clock, continuously generating Beijing Vastdata Technology, significantly boosting the demand for memory chips; at the same time, the demand for traditional CPUs is also increasing. Jonathan Cofsky, portfolio manager of the $8 billion tech and innovation fund under Janus Henderson, said: Now is the time when the world's richest tech companies are frantically buying all the chips and computing power they can get their hands on. This directly brings manufacturers handsome profits. The shortage of various chips is pushing up prices. Analysts expect this supply-demand imbalance to continue for years rather than months, with multiple bottlenecks limiting the speed of capacity expansion. Profit support valuation, fundamental difference from the internet bubble The most significant difference between this rally and the internet bubble of 2000 lies in strong corporate profits. Take memory chip manufacturer Micron Technology, Inc. (MU.US) for example. In 2023, the company's revenue was only $15.5 billion, with operating losses, and memory prices were low at that time. However, analysts predict that revenue for the current fiscal year will rise to $107 billion, and annual operating profit is expected to reach $77 billion. Despite a cumulative increase of about 770% in the stock price over the past year, according to FactSet data, benefiting from the significant profit growth, Micron's current price-earnings ratio is only 8.9 times the expected earnings of the next 12 months, while the S&P 500's price-earnings ratio is 23 times. Measured by traditional valuation standards, this soaring chip stock actually appears "cheap." Denise Chisholm, the director of quantitative market strategies at Fidelity Investments, said: The current anomaly lies precisely in how strong profit growth is. In contrast to the period of the internet bubble, many of the biggest winners back then almost had no profits or were completely loss-making. This fundamental difference is the core basis for most analysts to maintain a positive attitude towards chip stocks. Retail investors flock in, leveraged ETFs surge In addition to institutional investors, retail investors are also highly active in this chip feast. Data from Interactive Brokers Group, Inc. Class A show that the top 10 most active stocks on the platform in the past week are almost all chip manufacturers, tech companies buying chips, and an ETF focused on semiconductors-SOXL. SOXL tracks the New York Stock Exchange Semiconductor Index's daily triple performance using derivative instruments. In the past year, the ETF has surged by about 1200%. By the end of April, the combined daily trading volume of the 3x leveraged semiconductor ETF SOXS and the 3x leveraged semiconductor ETF SOXL had soared to about 330 million shares, the highest level in at least 16 months. In comparison, the trading volume of the 3x leveraged S&P 500 ETF SPXL and the 3x leveraged S&P 500 ETF SPXS had dropped to about 90 million shares, close to the lowest level this year. Chief strategist Steve Sosnick of Interactive Brokers Group, Inc. Class A said: AI is to a considerable extent driving the market, and even the entire economy. Semiconductors are the most direct manifestation of this logic... This is the closest to vertical surge I can remember. Barclays analysts wrote in a report to sales and trading clients this week: Remember, 'crazy' trends often last longer than most people expect. Controversy over bubbles heats up, veterans choose to hold and remain vigilant However, the shadow of history always looms over this frenzy. In the week ending May 7, the semiconductor ETF SMH recorded outflows of $2.3 billion, the largest weekly outflow since the fund was launched in 2011. The PHLX Semiconductor Index has just completed its strongest six-week gain since the week of March 10, 2000 which was the historical point when the internet bubble peaked and subsequently collapsed. Some veteran investors who experienced that era are choosing to continue holding, but are quietly considering when to exit. Peter Feinberg, a seasoned investor, has held Broadcom Inc. and Taiwan Semiconductor Manufacturing Co., Ltd. Sponsored ADR for over ten years, and these two investments have helped his portfolio consistently outperform the S&P 500 in recent years. He admitted that the gains since 2026 have been "somewhat surreal." He summed up the common mentality of old investors in one sentence: The best moments of the party are often the half hour before the police arrive. Feinberg said he is considering whether and when to trim some of his chip holdings, but for now, he chooses to hold on, while constantly reminding himself that good times won't last forever. This article is reprinted from "Wall Street Perception," author: Bao Yilong; GMTEight editor: Huang Xiaodong.