One of the hottest corners of the U.S. stock market, chipmakers, meets the definition of a bubble as measured by professors at Harvard Business School.
The semiconductors sector satisfies three criteria for a bubble based on the definition established in a 2017 working paper by Harvard Professors Robin Greenwood, Andrei Shleifer and Yang You: a two-year price return above 100%, two-year excess return over the S&P 500 of greater than 100% and five-year return of 50%, according to strategists at Ned Davis Research.
The strategists warned investors in a research note Monday to avoid semiconductor stocks “when the AI trade turns south.”
“Semiconductors, famously known for boom and bust cycles, have accounted for three of the nine industry groups that met the bubble criteria going back to 1991,” Ned Davis strategists led by Pat Tschosik wrote.
Moreover, the strategists found that chipmakers Nvidia Corp., Broadcom Inc., KLA Corp., Lam Research Corp., Micron Technology Inc., Advanced Micro Devices Inc. and Monolithic Power Systems Inc. individually meet the bubble criteria as well.
Of the 29 companies in the S&P 500 that match the definition of a bubble, 18 are in the artificial intelligence industry.
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