Semiconductor Stocks Show Bubble Signals by Harvard Measures

One of the most popular and fast-moving areas of the US equity market semiconductor stocks is now flashing classic bubble signals, according to a framework developed by professors at Harvard Business School.

The warning comes as chipmakers continue to attract heavy investor interest, fueled largely by enthusiasm surrounding artificial intelligence.

Based on academic research, the semiconductor industry currently meets the criteria used to identify speculative bubbles. Those benchmarks were outlined in a 2017 working paper by Harvard professors Robin Greenwood, Andrei Shleifer, and Yang You, which established a data-driven way to flag market excesses before they unwind.

Strategists at Ned Davis Research say chip stocks now satisfy all three conditions defined in that study.

First, the sector has delivered price gains of more than 100% over the past two years.

Second, its two-year performance has outpaced the S&P 500 by more than 100%, highlighting how sharply it has beaten the broader market.

Third, semiconductor stocks have also posted a five-year return of at least 50%, completing the trio of metrics used to classify a potential bubble.

Taken together, those numbers suggest that enthusiasm for chipmakers may have moved beyond fundamentals and into speculative territory.
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While strong demand for AI-related hardware has supported earnings growth and optimistic forecasts, the pace and scale of recent gains are raising red flags among market strategists.

In a research note published Monday, Ned Davis Research urged investors to be cautious. The firm warned that semiconductor shares could be particularly vulnerable once sentiment around artificial intelligence begins to cool. “When the AI trade turns south,” the strategists wrote, chip stocks are likely to be among the hardest hit.

The message is not necessarily that the semiconductor industry lacks long-term value. Rather, the concern is that prices may already reflect best-case scenarios, leaving little margin for error if growth expectations slip or competition intensifies.

For investors, the takeaway is a familiar one. Markets driven by powerful themes such as AI can deliver outsized gains, but they can also reverse quickly when momentum fades. With chipmakers now meeting formal bubble criteria, the sector may offer less attractive risk-reward dynamics than it did earlier in the cycle.

As a result, strategists suggest maintaining discipline and resisting the urge to chase performance. History shows that sectors flagged as bubbles often experience heightened volatility once sentiment shifts, making careful positioning and diversification especially important in the current environment.

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