Executive Summary
The semiconductor industry stands at a critical inflection point. After two years of explosive growth driven by AI infrastructure buildout, investors face a key question: is this a cyclical peak or the beginning of a sustained supercycle?
Our analysis suggests we are in the middle innings of a structural shift, not at a cyclical peak. However, near-term volatility is likely as inventory digestion continues in non-AI segments.
Key Findings
- AI demand remains robust: Hyperscaler capex plans for 2025 suggest continued strong demand for high-end compute chips
- Automotive recovery delayed: EV inventory glut and China weakness push automotive semiconductor recovery to H2 2025
- Inventory normalization ongoing: Consumer electronics channel inventory still 15-20% above historical norms
- Capacity additions moderate: Leading-edge fab capacity growth slowing after 2024 surge
Investment Implications
We favor equipment suppliers over chipmakers in the near term. ASML, Applied Materials, and Lam Research offer better risk-reward as they benefit from capacity additions without direct exposure to end-market volatility.
Within chipmakers, maintain overweight on NVIDIA and AMD for AI exposure, but trim positions in consumer-exposed names like Qualcomm and MediaTek.
Risk Factors
- Faster-than-expected inventory correction
- Hyperscaler capex cuts if AI monetization disappoints
- Geopolitical tensions disrupting supply chains
- China stimulus driving unexpected demand recovery
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