Important security note: Warning of attempted fraud in the name of DWS
We have detected that fraudulent individuals are misusing the "DWS" trademark and the names of DWS employees on the internet and social media. These fraudsters are operating fake websites, Facebook pages, WhatsApp groups and Mobile Apps. Please be aware that DWS does not have any Facebook Ambassador profiles or WhatsApp chats. If you receive any unexpected calls, messages, or emails claiming to be from DWS, exercise caution and do not make any payments or disclose personal information. We encourage you to report any suspicious activity to info@dws.com, including any relevant documents and the original fraudulent email. Additionally, if you believe you have been a victim of fraud, please notify your local authorities and take steps to protect yourself.
Semiconductors: good news already priced in
7/10/2026
AI is driving earnings and markets. But after the rally, the risk-reward balance is becoming more demanding
When it comes to artificial intelligence, one thing continues to stand out: the persistence of its momentum. This is reflected not only in technological progress but also in capital markets. While the initial focus was on the large platform companies, investor preferences have shifted markedly over the past year, as we analysed in more detail in our CIO Special “AI in 2026: growth and reality check[JJ1.1]” of June 26, 2026.[1] Semiconductor stocks have recently outpaced the big hyperscalers and have been a key driver of the AI rally. The Philadelphia Semiconductor Index (SOX) rose by close to 102 percent[2] in the first half of this year on a total return basis, accompanied by strong upward revisions to earnings estimates. The chart illustrates this shift.
The underlying driver appears structurally clear: AI requires enormous computing power and therefore chips, memory and production capacity. Demand from hyperscalers remains strong and could increase further with the rise of AI agents. At the same time, supply can only be expanded to a limited extent. High investment requirements, technological barriers and long lead times meet, in parts, an oligopolistic supplier structure. Largely price-insensitive demand has therefore resulted in exceptionally strong earnings growth.
At the same time, this dynamic also explains our more cautious tactical stance. We have downgraded the global semiconductor sector from positive to neutral. The fundamental AI story remains intact. However, after the strong share price performance and the substantial earnings growth, a significant part of the positive expectations now appears to be priced in. Traditional valuation metrics are less of a concern. Based on future earnings, many stocks do not appear excessively demanding. Instead, the key question is the sustainability of current margins and growth rates.
Historically, the sector remains clearly cyclical. Periods of tight capacity and high prices have regularly been followed by investment waves that eventually led to oversupply. Even if the current cycle could last longer due to disciplined capacity expansion, risks rise with every additional step-up in earnings. In some segments, very high margins and strong earnings momentum may point more to an advanced stage of the cycle than to a new sustainable equilibrium.
In addition, sharply rising prices for the “picks and shovels” of the AI boom could ultimately dampen demand for AI applications themselves. Higher costs for hardware and memory weigh on hyperscalers, companies and consumers alike. If monetization falls short of expectations, the willingness to invest could weaken.
“The AI story in the semiconductor sector remains intact, but after the strong rally it is less about growth and more about the sustainability of earnings,” says Tobias Rommel, Portfolio Manager Global Equities at DWS.
Our conclusion therefore remains nuanced. Semiconductors are and are expected to remain central to the AI value chain. In the short term, strong demand, tight capacity and full order books continue to provide support. At the same time, expectations and earnings levels are elevated. Against this backdrop, a more neutral stance appears tactically appropriate at present.
Sources: Bloomberg Finance L.P., DWS Investment GmbH as of 6/30/26
* Relative performance of the Philadelphia Semiconductor Index (SOX) versus the UBS Hyperscalers Index since November 2023
This information is subject to change at any time, based upon economic, market and other considerations and should not be construed as a recommendation. Past performance is not indicative of future returns. Forecasts are based on assumptions, estimates, opinions and hypothetical models that may prove to be incorrect.