Semiconductor margin expectations face a bubble test
The bear case suggests that analyst expectations for semiconductor forward profit margins have reached an unsustainable bubble territory, even as stock prices undergo a sharp correction.
The argument
The hosts highlighted that while the aggregate forward profit margin for the S&P semiconductor industry rose to a record 50%, investors are skeptical, paying a forward PE of only 18.4. Recent double-digit drawdowns in major memory and storage players, triggered by Samsung's growth rate mathematically needing to slow down, indicate a near-term unwind.
The thesis, stress-tested
✓ What validates it
- ✓Semiconductor forward profit margins beginning to roll over from the 50% peak
- ✓Subsequent earnings reports from memory makers showing margin compression due to inability to further hike prices
▸ Risks discussed
- ▸Strong underlying demand for AI hardware could still support elevated margins longer than expected
- ▸The sharp pullbacks may represent a healthy correction that keeps a larger bubble from forming
Hear it yourself
"So Ed says the bubble this time might be an analyst expectations for the forward profit margin of the S and P semiconductor industry. The aggregate forward profit margin rose to a record 50% last week. Investors certainly have their doubts given that they are paying a forward PE of only 18.4 currently, and I love the doubts."
00:00 / 00:21
AFFILIATE LINK · ZORTIX MAY EARN A COMMISSION · NEVER A RECOMMENDATION TO TRADE