After the SOX index logged its worst month since 2008, analysts pointed to hyperscaler capital spending and fresh earnings as support for semiconductor demand.
Semiconductor shares began to stabilize after a sharp July selloff, with Nvidia up nearly 3%, AMD up about 2% and the PHLX Semiconductor Index ending Monday up about 1% after an 8.2% jump last Thursday, its biggest one-day gain in 15 months. The shift in tone comes after the SOX index posted its worst monthly performance since 2008 and at one point fell more than 20% from its June peak, moving the market debate away from whether the AI trade had overheated and toward which companies still have earnings support after the drop. Jefferies said Microsoft and Amazon's latest results offered important evidence that heavy AI investment is generating tangible returns for customers and infrastructure suppliers, a key read-through for buyers of Nvidia, AMD, Broadcom, memory and networking chips. Citi said the recent semiconductor pullback was driven mainly by oil prices, U.S. Treasury yields and worries over AI capital spending, but argued the decline created a buying opportunity. It added that data centers remain the strongest end market, accounting for about 34% of semiconductor demand and potentially exceeding the entire semiconductor TAM (total addressable market) by 2030. Citi also said consensus forecasts for companies that have already reported were raised by 4% and 7% for 2026 and 2027 revenue, and by 7% and 8% for EPS (earnings per share), while it preferred semiconductor equipment names because higher capital spending from TSMC and Intel feeds more directly into that supply chain. BofA estimated hyperscalers (largest cloud service providers) could spend about $860 billion in aggregate capital expenditure this year, up about 80% year on year, supporting valuations for GPUs, ASICs (application-specific integrated circuits), HBM (high-bandwidth memory), advanced packaging and equipment suppliers. UBS CIO said investor sentiment improved after hyperscalers reported faster cloud growth and signaled further increases in AI spending, and projected AI spending would reach $900 billion this year and $1.2 trillion in 2027, reinforcing a constructive view on semiconductor and hardware demand. Morgan Stanley called this week's earnings the next test and said AMD, SanDisk and Western Digital were expected to deliver another set of strong results. The three remain standout AI hardware-linked stocks this year, with AMD up more than 100%, Western Digital up more than 200% and SanDisk up about 400%. If AMD and memory makers continue to confirm demand strength in their earnings, the recovery in chip shares could gain firmer footing.