Why Are Retail Traders Still Buying Chip Stocks?
Even as tech stocks took a beating over the past two months, retail traders kept doing something surprising — buying chip stocks. A Stocktwits poll of over 12,000 voters revealed that 42% chose AI and chip stocks as their top pick during the downturn. That was the highest of any category.
Think of it like a sale at a favorite store — some shoppers leave, but bargain hunters rush in. While money rotated into energy and utilities, retail traders saw chip stocks as strong recovery candidates worth holding through the turbulence. Custodial accounts also let younger investors gain exposure to these opportunities. SOXX gained 12% year to date, outperforming every other major tech-focused fund tracked in the space.
Strong earnings from Nvidia, TSMC, Broadcom, and Marvell helped fuel confidence in the semiconductor sector, giving retail traders a fundamental reason to stay the course even as other parts of the tech market struggled.
Which Chip Stocks Are Outperforming: and Why?
So retail traders kept buying chip stocks during the downturn — but which ones actually rewarded that loyalty?
Several names stood out in 2026. Micron Technology posted a stunning 539% one-year return, driven by exploding demand for AI memory chips. Coherent Corp and Teradyne weren’t far behind with returns above 430%. Lam Research surged 146% year-to-date. Meanwhile Nvidia and Broadcom kept climbing steadily. Nvidia dominates AI graphics chips while Broadcom leads custom chip design for big tech companies.
Think of them like the star players everyone expected to perform — and they actually delivered. BofA projects AI capital expenditure to reach $1.2 trillion by 2030, signaling that the underlying demand fueling these gains is far from exhausted. ASML remains the sole EUV photolithography provider globally, giving it an unrivaled chokehold on the production of the most advanced chips powering this AI boom. Lower interest rates can make it cheaper for firms to finance expansion, which may further boost capital expenditure.
What Analysts Are Saying to Buy and Avoid Right Now?
With so many chip stocks to choose from, knowing which ones analysts actually recommend can feel like picking the right player for a fantasy sports team.
Goldman Sachs likes Applied Materials and AMD. Applied Materials benefits from strong memory and foundry spending. AMD gets a boost from AI-driven server demand. Many investors balance picks between individual names and ETFs to manage risk and diversification diversification strategies.
Meanwhile, Goldman suggests avoiding KLA Corp, Onsemi, and Arm Holdings. KLA faces weaker inspection spending. Onsemi struggles with slow automotive markets. Arm carries a Sell rating due to smartphone weakness.
Morningstar favors Nvidia despite recent flat trading and values shares around $270, calling recent dips good buying opportunities. Broadcom is also among Morningstar’s top semiconductor picks, with analysts pointing to accelerating AI chip demand driven by Google TPU orders and new customers as fuel for strong growth over the next two years.
TSMC, the world’s largest contract chip manufacturer, remains central to the sector as the primary fabrication partner for companies like Nvidia, AMD, and Apple, though its concentration in Taiwan continues to draw scrutiny as a key geopolitical risk.
What Warning Signs Are Bulls in Semiconductors Dismissing?
Chip stock bulls may be wearing rose-colored glasses right now. Several warning signs are flashing red but getting ignored. The Philadelphia Semiconductor Index sits 14% below its July 2024 highs even while the broader market climbed higher. That gap is hard to explain away.
Meanwhile companies like onsemi show weakening sales growth and shrinking margins. Ghost bookings once created fake demand signals that fooled the whole industry. Now inventory buffers are thin and revenue growth looks sluggish. Bulls keep buying anyway.
Sometimes confidence is an asset. But sometimes it is just optimism dressed up in an expensive suit. Rate uncertainty, ongoing inventory digestion, and export control volatility continue to cast shadows over the sector’s near-term outlook. Analysts have even drawn comparisons between current market valuations and those seen during prior major bubbles like 1929 and 2000, warning that stretched prices leave little room for error if economic data continues to weaken.
Investors should remember that stock prices are driven by supply and demand and can fall quickly if sentiment shifts.
Are Semiconductor Valuations Outpacing the Underlying Demand?
How much is too much to pay for a good thing? Semiconductor valuations are raising eyebrows. AI demand is real and growing. But some chip stocks may be priced beyond what actual demand supports. Consider these warning signs:
- Some stocks trade disconnected from fundamentals
- Memory chips face commoditization and lower growth
- Traditional market estimates reach $1T–$1.1T by 2030, well below lofty projections
- Rising electricity costs threaten profit margins
Think of it like paying championship prices for a team still proving itself. The potential is there. The premium, though, may already assume perfection. Building a new fab costs tens of billions and takes years, meaning capacity cannot respond quickly when demand estimates prove overstated. When book-to-bill ratios fall below 1.0 and inventory levels rise, these cycle warning signals often precede meaningful revenue and margin declines across the sector. Central bank policy and interest rate changes can also reshape investment flows into equities and market expectations, amplifying valuation swings.
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