SEPTEMBER 2026
This chart shows the performance of semiconductor stocks relative to global equities. When the ratio rises, chipmakers are leading the broader market and vice versa.
Semiconductor outperformance has accelerated sharply since early 2025, reflecting the sector’s position at the epicentre of the AI capex boom.
Every model, data centre and application ultimately demands vast quantities of chips, making semiconductors one of the purest expressions of AI activity.
The recent spike, followed by a sharp reversal, has some of the hallmarks of a classic blow-off top.
This suggests market leadership may continue to broaden beyond chip stocks in the months ahead, unless AI-related spending accelerates further from already elevated levels.
The chart below captures annual spending on the specialised machinery and equipment used to manufacture semiconductors.
The parabolic rise of recent years speaks for itself.
Total billings have risen from around U$30bn a decade ago to more than U$130bn today, reflecting the enormous investment required to build AI data centres and expand semiconductor production capacity.
This suggests the euphoric AI narrative is being supported by genuine spending rather than speculation alone.
Unlike the TMT boom of the late 1990s, when share prices often raced ahead of revenues and earnings, today’s AI leaders are benefiting from a surge in orders.
Valuations remain demanding, but the strength of underlying demand helps justify at least some of the extraordinary share price performance seen across the sector.
Is the AI capex boom sustainable?
Sceptics increasingly point to financing risks as many tech firms now turn to debt markets, rather than cash reserves, to fund their spending plans. This leaves balance sheets more exposed to changes in borrowing costs, credit availability and future revenues.
The chart below paints a mixed picture.
On the one hand, AI-related investment is clearly substantial with companies such as Meta, Microsoft and Google now spending more than 20% of annual revenues on capital expenditure.
On the other, these figures remain broadly consistent with highly profitable businesses generating significant cash flows.
Capital spending is elevated, but it is being funded against a backdrop of robust revenues and earnings rather than speculative growth projections.
For now, this suggests the AI investment cycle has entered a more aggressive phase, but not necessarily an unsustainable one.
Oracle has emerged as an unlikely bellwether for the AI cycle.
The company is borrowing heavily to build large data centres, making it one of the main beneficiaries of continued capex, but also leaving it more exposed to any signs of balance sheet stress.
A Credit Default Swap (CDS) is essentially an insurance contract against a company defaulting on its debt. When CDS spreads rise, investors are demanding greater compensation for perceived credit risk (and vice versa).
That is what makes this chart one to watch.
Oracle’s 3-year CDS spread has risen from around 20 basis points in early 2025 to more than 140 basis points today, despite continued optimism surrounding AI demand.
The message is that the AI boom is not necessarily ending, but credit markets are becoming more focused on how the capex is being financed.
This means the cycle is likely entering a more discerning phase.
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