The Philadelphia Semiconductor Index (SOX) has recorded a dramatic advance - up roughly 66% over the past five months and about 162% year-on-year - yet Bernstein analyst Stacy Rasgon argues the move has been driven almost entirely by earnings expansion, not by a broad re-rating of valuations.
Rasgon points to the SOX blended next-12-month (NTM) earnings estimates, which have increased by about 69% since the beginning of the year. At the same time, the sector's P/FE multiple is down roughly 2%, indicating the index's gains are overwhelmingly attributable to profit growth rather than multiple expansion. In Rasgon's words, earnings growth has accounted for more than 100% of the sector's year-to-date move.
Measured on a forward basis, the semiconductor sector now trades at about 28 times forward earnings - a level Rasgon describes as elevated but still below historical peaks. He suggests that the crucial debate should center on whether those elevated earnings trajectories are sustainable, as opposed to focusing solely on valuation levels.
Inside the semiconductor complex, Rasgon identifies a widening divergence that he views as a potential opportunity. Names tied to GPUs and ASICs, along with semiconductor capital equipment makers, have experienced substantial earnings growth but only modest multiple expansion, implying room for those multiples to catch up if earnings persist.
Conversely, analog and CPU-focused companies have seen comparatively larger multiple re-ratings relative to their earnings gains, suggesting a different market response within those subgroups.
Memory stocks represent an extreme example of the dichotomy Rasgon describes. Average memory share prices have more than tripled year-to-date on an earnings outlook that has nearly quintupled. Despite this surge in both price and earnings expectations, memory multiples have declined amid investor concerns about a peak cycle.
On specific names, Bernstein expresses continued confidence in several large-cap semiconductor franchises and in capital equipment companies. The firm remains bullish on Nvidia and Broadcom and on semiconductor capital equipment stocks more broadly. Rasgon notes that Nvidia and Broadcom screen as relatively inexpensive on a realistic 2027 earnings basis, trading at about mid-teens multiples of forward earnings under those assumptions.
Bernstein has also grown more favorable toward AMD, seeing a pathway to $20 in earnings per share by 2028, and rates Applied Materials, KLA and Lam Research as Outperform. These ratings reflect the firm's positive view on a subset of companies positioned to benefit from current demand trends and the underlying earnings momentum.
Rasgon's analysis frames the sector rally as primarily earnings-driven and underscores heterogeneity within the market. For investors, the central question becomes the durability of projected earnings improvements across different semiconductor subsectors and whether multiples will ultimately reprice to reflect that earnings performance.