<\/p>\n
With tech companies continuing to boost AI spending, the valuation of many chipmakers are increasingly expensive.<\/p>\n
(Bloomberg) — Chip stocks have become a favorite way to bet on artificial intelligence. But after big runups in companies like Broadcom Inc., investors are turning to an often overlooked group \u2014 suppliers of the gear used to make semiconductors.<\/p>\n
Most Read from Bloomberg<\/p>\n
Teradyne Inc., a provider of tools used for testing chips during the manufacturing process, has nearly doubled from an April low and is up more than 50% since late July. Meanwhile, Lam Research Corp. and KLA Corp. \u2014 two of the biggest US makers of machines used to produce semiconductors \u2014 are the fourth- and fifth-best performing stocks, respectively, in the 30-member Philadelphia Stock Exchange Semiconductor Index this year with gains of more than 69%.<\/p>\n
<\/p>\n
Earlier this month, Lam went on a 14-session rally, its longest winning streak on record, during which the shares soared 36%. And peer Applied Materials Inc. just posted its own eight-session streak that added 20%.<\/p>\n
With companies like Microsoft Corp. and Alphabet Inc. continuing to boost spending on AI, and the valuations of many chipmakers looking increasingly expensive, equipment suppliers have become a destination for investors seeking growth at a more reasonable cost \u2014 although their valuations aren\u2019t as enticing as they were now that investors are starting to pile in.<\/p>\n
\u201cThe market\u2019s clearly front-running the next AI capex wave, betting that fabs and cloud players keep spending aggressively,\u201d said Haris Khurshid, chief investment officer at Karobaar Capital. \u201cThe catch is valuations have already run hard, so any pause in orders or delayed spend could hit fast.\u201d<\/p>\n
The gains follow a similar trend playing out in memory and storage hardware, another unsung corner of the tech sector.<\/p>\n
Micron Technology Inc., which counts Lam Research and KLA as suppliers, has gained more than 90% this year amid soaring demand for high-bandwidth memory that\u2019s critical in AI computing. South Korea\u2019s Samsung Electronics Co. and SK Hynix Inc., which compete with Micron in supplying memory, are Teradyne\u2019s biggest customers.<\/p>\n
A strong outlook for spending on testing gear in the memory market was a reason Susquehanna analyst Mehdi Hosseini raised his price target on Teradyne to $200 from $133 last week. The stock closed at $134.33 on Monday, implying upside of 49%.<\/p>\n
Teradyne\u2019s expanding presence in several test markets including wafer sorting, which is expected to include Taiwan Semiconductor Manufacturing Co., is \u201ca positive and incremental development that we believe is not entirely reflected in the current share price,\u201d Hosseini wrote in a note to clients on Sept. 22.<\/p>\n
One issue is that even tertiary AI plays like semiconductor equipment are starting to get expensive, raising risks in the event of a slowdown. Lam Research recently was downgraded by analysts at KeyBanc Capital Markets, who wrote that relative to the stock\u2019s rally \u201cwe don\u2019t think that a corresponding increase in consensus expectations or actual earnings power is imminent.\u201d KLA Corp., which makes chip fabrication machinery, was cut at Morgan Stanley and CFRA last week.<\/p>\n
Lam Research and KLA both began the year trading around 20 times profits expected over the next 12 months, and they\u2019re now approaching 30 times. While that\u2019s cheaper than the likes of Broadcom at 36 times, it\u2019s above the average in the Philadelphia semiconductor index. Teradyne is priced at 33 times estimated profits, making it pricier than Nvidia Corp.<\/p>\n
\u201cThe rally looks to be on shaky footing, since it seems like exponential investment in AI is the only way for it to keep up, and that seems unlikely,\u201d said Adam Rich, who helps oversee more than $17 billion in assets as deputy chief investment officer and portfolio manager at Vaughan Nelson. \u201cRight now everyone is winning, and if you\u2019re part of the AI trade, that\u2019s great, but no one wins forever.\u201d<\/p>\n
Tech Chart of the Day<\/p>\n
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Electronic Arts Inc. has agreed to sell itself in the largest leveraged buyout on record to a group of investors that includes a firm managed by President Donald Trump\u2019s son-in-law Jared Kushner and Saudi Arabia\u2019s sovereign wealth fund.<\/p>\n
Top Tech Stories<\/p>\n
Verizon Communications Inc. is in discussions with EchoStar Corp. about purchasing some of its wireless spectrum, according to people familiar with the matter.<\/p>\n
Alphabet Inc.\u2019s Google agreed to pay $24.5 million to resolve Donald Trump\u2019s claims that being blocked from posting on his YouTube channel after the Jan. 6, 2021, riot at the US Capitol was illegal censorship, according to a court filing.<\/p>\n
Huawei Technologies Co. is preparing to sharply ramp up production of its most advanced artificial intelligence chips over the next year, aiming to win customers in the world\u2019s biggest semiconductor market while Nvidia Corp. struggles with geopolitical headwinds.<\/p>\n
Rebellions Inc. raised $250 million from investors including Arm Holdings Plc to mass produce its chip and speed up product development in a competitive AI market.<\/p>\n
Earnings Due Tuesday \u00a0 \u00a0 <\/p>\n
–With assistance from Subrat Patnaik.<\/p>\n
(Updates stock moves throughout.)<\/p>\n
Most Read from Bloomberg Businessweek<\/p>\n
\u00a92025 Bloomberg L.P.<\/p>\n","protected":false},"excerpt":{"rendered":"With tech companies continuing to boost AI spending, the valuation of many chipmakers are increasingly expensive. (Bloomberg) —…\n","protected":false},"author":2,"featured_media":53009,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[20],"tags":[220,38078,38074,218,219,971,1676,38075,61,2397,60,38077,38071,38072,11143,38073,80,38076],"class_list":["post-53008","post","type-post","status-publish","format-standard","has-post-thumbnail","category-artificial-intelligence","tag-ai","tag-alphabet-inc","tag-applied-materials-inc","tag-artificial-intelligence","tag-artificialintelligence","tag-bloomberg","tag-broadcom-inc","tag-chief-investment-officer","tag-ie","tag-investors","tag-ireland","tag-kla-corp","tag-lam","tag-lam-research-corp","tag-micron-technology-inc","tag-philadelphia-stock-exchange","tag-technology","tag-teradyne-inc"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/53008","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/comments?post=53008"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/posts\/53008\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media\/53009"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/media?parent=53008"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/categories?post=53008"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/ie\/wp-json\/wp\/v2\/tags?post=53008"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}