Bernstein: Semiconductor valuations fall as earnings estimates rise: Why does Bernstein still see strong AI demand?

Why have stock prices and earnings expectations diverged?

As of 30 October 2026, the Philadelphia Semiconductor Index was still up 50.9% year to date, but had fallen 27% from its June peak and dropped 7.2% on the most recent trading day.
Valuation compression over the same period offset the improvement in earnings expectations: since the June peak, the index’s expected earnings per share for the next 12 months rose 40.1%, while its forward price-to-earnings ratio fell 47.9%.
Bernstein believes investors are increasingly concerned about whether AI demand can be sustained, the returns on investment, and where the funding to support companies’ strong forecasts will come from.

Bernstein believes spending by a few large cloud providers was slightly lower recently, mainly because of timing; all maintained or raised their spending outlooks for the year and expect spending to accelerate significantly the following year.
On that basis, the firm believes data center construction will continue to support growth in demand for wafer fabrication equipment over multiple years. Meanwhile, recent post-earnings share price declines show that investors remain concerned about spending delays and the sustainability of large investments.

Bernstein notes that Intel’s data center results and outlook were significantly above expectations, with strong demand for server CPUs and its ASIC business, which mainly consists of networking products, providing corroborating evidence of demand for AI infrastructure.
The opposing pressure is concentrated in PCs: the firm believes strong memory demand from AI and data centers is crowding out supply and constraining PC assembly. Intel shares fell nearly 30% on the Friday after its earnings report, and the firm also sees the weak PC outlook as a major near-term headwind for the company.

The firm focuses on Nvidia and Broadcom, believing both are driving the industry forward; it is also positive on semiconductor equipment because of the multiyear equipment demand arising from data center construction.
Bernstein is also positive on AMD’s CPU and GPU growth opportunities, but acknowledges near-term risks to its PC business. Recent sector performance has been uneven: within its coverage, higher-valuation equipment and CPU companies fell more sharply, while Nvidia, Broadcom and analog chip companies were relatively resilient.