Overlooked bottlenecks and hyperscalers forced to keep spending will keep the chip-stock rally alive, say Nomura analysts
The semiconductor top is not in, as hyperscalers, for one, can't stop spending, says Nomura.
Given the blistering 80%-plus gain for the PHLX Semiconductor Index SOX in the second quarter, investors have understandably been wondering if a cycle top is nearing.
Nope, says a crack team of Nomura analysts who dazzled some on social media with a 119-page deep dive of the sector that published Tuesday. They see the chip run continuing for a couple of reasons: "go-big-or-go-home" hyperscalers can't stop spending in 2027, partly due to rising memory-chip costs; and data-center building plans have ramped up.
Calling the recent chip pullback "healthy," a team led by head of Taiwan equity research, Aaron Jeng, cautioned that the market hasn't even dealt with some of the risks and shortages to come. They list those as: "the likely biggest-ever component supply mismatch;" free cash flow issues for hyperscalers next year; execution on lots of "cutting-edge technologies" to show up beyond 2027, and "macro risks related to a yield uptrend."
First and foremost, they said the new factories being built by chip makers to cope with high demand from artificial intelligence hyperscalers will take about two years, keeping capacity constrained at least over 2027. They add that wafer-on-substrate and other small components could become a bigger bottleneck next year.
While Taiwan Semiconductor (TW:2330) has "turned aggressive" with its plans for what's called chip-on-wafer-on-substrate packaging-a critical process that helps high-performing AI chips function-it doesn't actually control the substrate base that the chips sit on, they noted. Instead it relies on smaller suppliers, which is creating a bottleneck that few are seeing right now. That leads them to believe Taiwan Semiconductor won't hit its packaging output goal for next year.
Just looking at that, they expect "profound implications," for companies that sell chips to run AI and those building their own.
They expect an "unprecedented" component supply mismatch in the second half of the year that will get worse next year.
The imbalances could "further deteriorate" from a ramp-up of Nvidia's (NVDA) next-generation Vera Rubin platform and Amazon's (AMZN) in-house Trainium 3 chips in the latter half of this year.
"This could further affect the supply chain for non-AI subsectors such as consumer and auto, in our view. Also supply chain price hikes could continue or increase with worsening shortages, we think," said the Nomura team.
While the industry is set for shortages, Nomura sees a much stronger market ahead for servers. They expect global server revenue growth of 74% in 2026 - from 43% year-over-year previously - and 65% in 2027. They noted that neocloud companies are buying up any hardware that Big Tech is passing up, keeping demand strong.
As for the stocks they like in this supply-chain battleground, they start with TSMC and include ASE Technology Holding (TW:3711), Aspeed Technology (TW:5274), MediaTek (TW:2454), GlobalWafers (TW:6488), King Yuan Electronics (TW:2449), Elite Material (TW:2383) and Zhen Ding Technology (TW:4958).
The markets
U.S. stock futures (ES00) (YM00) (NQ00) are lower, with more gains for the dollar and weakness for gold (GC00)and silver (SI00).
Key asset performance Last 5d 1m YTD 1y S&P 500 7499.36 1.82% -1.45% 9.55% 21.00% Nasdaq Composite 26,213.72 2.45% -3.25% 12.79% 29.75% 10-year Treasury 4.471 8.00 -2.90 29.90 18.70 Gold 3997 -0.48% -10.44% -7.74% 18.65% Oil 68.76 -1.59% -28.52% 19.77% 1.82% Data: MarketWatch. Treasury yields change expressed in basis points
The buzz
Fed Chairman Kevin Warsh will appear on a panel along with other central bankers such as ECB President Christine Lagarde at 9 a.m. Eastern in Sintra, Portugal. Investors are eager to hear more on his inflation-fighting views.
ADP private-sector payrolls are due at 8:15 a.m., with the Institute for Supply Management's manufacturing index at 10 a.m., along with construction spending.
U.S. restrictions were lifted on Anthropic's powerful AI model ahead of its big IPO.
Nike stock $(NKE)$ is falling after the sportswear maker beat earnings estimates, but sales fell.
Shutterstock shares $(SSTK)$ are sinking after Getty Images (GETY) said it will cancel merger plans due to U.K. regulatory hurdles.
Intuitive Machines stock (LUNR) is up after the space group won a contract worth up to $148.3 million to deliver a Moon lander for NASA.
In San Francisco, even $180,000 tech salaries aren't enough.
The chart
A team of Deutsche Bank strategists led by Binky Chadha share this chart showing second-quarter S&P 500 earnings growth expectations at 26.2%, double the prior record going into an earnings season outside of recession recoveries. That's after first-quarter growth of 25.2%, the highest in four years and strongest in two decades, they said. Driving second-quarter expectations: semis, megacap growth and tech, and a "stepping-up" of the rest of the S&P 500. They see scope for stocks to move higher over the medium term.
Top tickers
These were the top-searched tickers on MarketWatch as of 6 a.m.:
Ticker Security name SPCX SpaceX NVDA Nvidia MU Micron TSLA Tesla TSM Taiwan Semiconductor Manufacturing INFY Infosys AMD Advanced Micro Devices MSFT Microsoft PLTR Palantir GME GameStop
-Barbara Kollmeyer
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(END) Dow Jones Newswires
July 01, 2026 07:08 ET (11:08 GMT)
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