Trades have already unwound, so why still watch crowding?

  • As the investment case for beneficiaries of AI infrastructure gained traction, hardware, semiconductor and networking equipment stocks went from historically less popular sectors to favorites. Even after some trades pulled back, 7 of the 12 semiconductor and equipment companies and 5 of the 7 networking companies covered by Bernstein remain in the most crowded 10%.
  • Two benchmarks must be kept separate: technology is currently the most crowded sector across the market, but is only above average relative to its own history, rather than at an exceptionally high level; the change in hardware and networking equipment relative to their own histories is more pronounced.
  • Crowded stocks significantly outperformed in the first half of 2026 before reversing. Bernstein emphasizes sharper drawdowns and relative weakness when volatility rises, rather than judging whether stocks will rise or fall from crowding alone.

Does this set of indicators measure actual holdings?

  • Bernstein estimates crowding using five proxies: institutional overweight positions, consecutive net buying, price momentum over the past two years, analyst buy ratings, and a combination of earnings estimate upgrades and high forward price-to-earnings ratios. Together they capture positioning, sentiment and expectations, unlike a direct count of hedge fund positions.
  • Individual stock scores are calculated relative to the hardware and semiconductor stock universe, with 1 the most crowded decile and 10 the least crowded. A sharp share-price rise can therefore coexist with a low crowding score, and a low score does not necessarily mean a cheap valuation.

Which less-crowded companies have clear operating reasons for their position?

  • Within semiconductors, AI chips are the most crowded, followed by equipment and analog chips; Qualcomm is the least crowded name in the coverage universe. KLA has been around the median since June, while the other three equipment companies are in the most crowded decile.
  • KLA's difference has a fundamental explanation: Bernstein expects longer delivery cycles to slow its growth in calendar 2026, while higher prices for DRAM used in its own products will put approximately 1 percentage point of pressure on gross margin. Its smaller exposure to memory and a valuation higher than Applied Materials and Lam Research weaken its near-term appeal.
  • HP is also uncrowded, but storage and memory have risen from 15%–18% of PC bill-of-materials costs to approximately 35%, and the company guides for a double-digit decline in PC unit sales in 2026. Low expectations improve the risk-reward balance, but come with specific cost pressures.

What constrains the high expectations for popular hardware stocks?

  • Apple, Western Digital, Seagate and Dell are all in the most crowded decile. Apple's crowding has not declined alongside concerns about memory costs; DRAM and NAND account for approximately 90% of the year-on-year increase in the cost of new iPhones, prompting Bernstein to flag downside risks to gross margin and earnings per share for the quarter ending in December.
  • Dell has more direct support: second fiscal-quarter AI server orders were 60.9 billion dollars and quarter-end backlog was 95 billion dollars; the company raised its FY27 revenue guidance by 25 billion dollars to 192 billion dollars. Bernstein believes the key constraint amid crowded positioning is whether component supply will allow the backlog to be converted into revenue.

Where have more favorable trading conditions emerged?

  • Celestica's crowding has fallen markedly since its June peak, and its valuation multiple has also compressed. It remains above the average for the hardware and semiconductor stock universe, but is low relative to its own history; Bernstein believes this may improve trading conditions for investors at present.
  • SanDisk has scored 9–10 since July, reflecting concerns about slowing growth in average selling prices. Bernstein sees support from its long-term agreements: more than half of FY27 bit shipments and approximately two-thirds of FY28 bit shipments are covered by agreements with price floors and ceilings, backed by 16.5 billion dollars in financial guarantees.
  • SanDisk's low-crowding signal must be understood in light of the data history: some factors require two years of trading history, while it was only relisted in February 2025, making the score less stable. Bernstein maintains its Outperform rating and plans to review the updated score in February 2027.