Research Report Analysis: The Semiconductor Sector Rose 155%; Bernstein Says NVDA and AVGO Are Still “Absurdly Cheap”
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Research Report Analysis: The Semiconductor Sector Rose 155%; Bernstein Says NVDA and AVGO Are Still “Absurdly Cheap”
Although NVDA and AVGO are relatively inexpensive, this is predicated on the assumption that they will meet analysts’ targets.
Navigating Web3 tides with focused insightsAuthor: Rita
TideResearch Insight
Bernstein released its quarterly semiconductor industry review on June 23. Key takeaways: AI has become the “only game” in semiconductors—fundamentals are strong, but valuations and positioning have reached historical highs. The report recommends NVDA and AVGO (both rated “Outperform”), arguing that although their performance has lagged this year, they are the most critical beneficiaries across the AI supply chain and are currently “absurdly cheap” on a valuation basis. AMD was upgraded, while QCOM remains under scrutiny due to pressure on its mobile business.
AI Demand Drives Semiconductor Sector to Record Gains
The Philadelphia Semiconductor Index (SOX) rose 155.6% over the past year and 106.6% year-to-date. In comparison, the S&P 500 rose only 9.2% over the same period. SOX’s premium versus the S&P 500 has widened to 62%.
This rally is fundamentally driven—not speculative. Bernstein’s data shows SOX’s forward EPS has risen 75% since the start of the year, while valuation expansion accounts for only a small portion of the gain.
Internal sector divergence has reached extreme levels. From year-start through June 22, memory chips surged 500%, CPUs and optical solutions each rose 220%, while GPUs and ASICs gained only 115%. The entire AI supply chain is profitable—but profitability varies significantly across segments. The upstream and downstream ends benefit most: building new fabs requires memory and semiconductor equipment, both of which face constrained supply. GPUs rose just 115%, despite NVDA commanding the vast majority of the AI chip market share.
Purchasing Power Amid Elevated Valuations
SOX’s forward P/E ratio now stands at 34.1x, compared to 21.0x for the S&P 500—a 62% premium. That sounds expensive—until you examine individual companies. For example, NVDA’s adjusted EPS forecast is $9.19 for FY2026 and $12.52 for FY2027. At Bernstein’s $315 target price, NVDA’s FY2027 P/E is 25x—well below the sector’s forward P/E of 34x. NVDA is not the most expensive; it’s relatively cheap.
Bernstein analyst Stacy Rasgon used one phrase to describe it: “absurdly cheap.”
His rationale is straightforward: NVDA’s Blackwell chip family is projected to generate $1 trillion in revenue by 2027. AVGO faces a similar dynamic—its $550 target price appears inexpensive if it achieves its $100 billion AI-related revenue target by 2030.
This explains why Bernstein rates both companies “Outperform.” Though they’ve underperformed this year, they sit at the core of AI demand. For context, Apple trades at ~28x forward P/E, Microsoft at ~30x, and NVDA at just 25x. Considering the seamless product continuity between Blackwell and Rubin generations—and AVGO’s dominant position in switch silicon—these valuation discounts look highly unjustified. Markets have overlooked a fundamental truth: without NVDA and AVGO chips, the entire AI infrastructure grinds to a halt.
Dual Narrative for CPUs, Singular Challenge for QCOM
AMD was recently upgraded by Bernstein to “Outperform.” Why? Because AMD benefits not only from AI/GPU opportunities but also from the emerging trend of on-device AI acceleration via CPUs. CPU unit shipments began improving quarter-on-quarter in Q1 2026—slightly outpacing PC shipments. Bernstein believes AMD’s fundamentals support an EPS target of $20 by 2028, leaving room for upside from current share prices.
QCOM, meanwhile, faces a singular challenge. Smartphone shipments declined 3% year-on-year in Q1 2026. Rising memory chip prices increase handset costs, eroding pricing power for chipset suppliers. Bernstein acknowledges its prior downgrade of QCOM was a “poor decision,” yet maintains a “Market Perform” rating. The issue is clear: consumer electronics weakness is structural, and QCOM struggles to identify a new growth engine. Even if future Analyst Days unveil new data center narratives, they lack persuasive force compared with AMD’s dual catalysts and chipmakers’ structural advantages.
Realistic Assessment of Sub-Sectors
Semiconductor equipment makers (AMAT, LRCX, KLAC) remain strongly favored—the need for capacity expansion remains robust. All three are rated “Outperform,” with target price upside ranging from 30% to 70%.
Analog chipmakers (ADI, TXN) present a more complex picture. They are indeed in recovery, posting double-digit growth for over a year, but data center exposure remains modest—around 10%. With P/E ratios between 30x and 40x, ADI and TXN appear expensive. Bernstein assigns both a “Market Perform” rating and adopts a wait-and-see stance.
Two Risks: Crowding and Inventory
Bernstein’s industry sentiment indicator shows semiconductor positioning has hit historical extremes. Days of inventory are rising again—well above the upper bound of historical norms. Channel inventory has declined slightly but remains above average. What does this imply? Any sign of softness in downstream demand would trigger broad-based, proactive inventory reduction across the supply chain. PCs and consumer electronics already show weakness; smartphones are down year-on-year. If inventory pressure spreads to data center procurement, price wars become a tangible risk—and pricing power for bottleneck-positioned firms (NVDA, AVGO) would be severely undermined.
AI demand strength is unquestionable—but today’s elevated valuations have already priced in those positives. NVDA and AVGO may be relatively cheap, but only if analysts’ targets materialize. AMD’s story is compelling, yet execution risk persists. QCOM has become an afterthought, lacking clear catalysts. Bernstein’s stance is selectively bullish: at this juncture, stock selection matters more than directional calls.
Disclaimer
This article is TideResearch’s summary and interpretation of a third-party brokerage research report. Ratings, target prices, earnings forecasts, and related judgments cited herein reflect the views of Bernstein analysts only and represent the positions of their respective institutions—not TideResearch’s views—and do not constitute investment advice.
Please note the following three points when reading: First, target prices represent analysts’ expectations for approximately the next 12 months—not commitments—and are subject to repeated adjustments based on financial results and market conditions. Second, sell-side reports are inherently biased toward optimism, and some covered companies maintain investment banking relationships with the issuing firm. Third, the value of a research report lies in its core logic and underlying assumptions—not any single target price. Focus on the logic—not just the number.
Markets carry risks; decisions must be made independently. This article should not serve as the basis for buying or selling any securities.
Data Source: Bernstein Research Report (Stacy A. Rasgon et al., June 23, 2026) · Public Market Data
TideResearch · 2026 June
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