Key insights
- The author argues that the current semiconductor rally, driven by AI and defense applications, differs from the 1999 dot-com bubble. Despite potential economic degradation, government support via the Chips Act and strategic interests in AI and domestic resource security (REMs) could sustain the sector. While acknowledging volatility and the possibility of a 'bubble pop,' the author suggests a slower, potentially higher-resilient trajectory for SOX compared to historical precedents, indicating a potential outperformance driver for specific market segments.
Unlike 1999, semiconductors now represent business efficiency and defense posture highlighted by the Chips Act and recent minority interest in Intel. It's plausible that as the economy degrades there will be continued government support for AI to strengthen corporate efficiency and further support defense even at the cost of consumer spend.
Unlike 1999 where the internet was seen as chat rooms, you've got mail and emerging ecommerce the implications today are about making businesses more efficient and a stronger defense which includes renewed interest in mining and refining our own REM.
Bubble still pops but perhaps not as quickly as after 1999 gap up. Why often SOX rallies when overall market sentiment is bearish. Why it continues to reach new ATH on the back of bullish news where nothing fundamentally changed for AI. Why SOX might be its own play disconnected from the rest of the market or economy although remains highly volatile because it often reacts more bearish when news is bearish, yet recovery isn't just mean revision but new high benchmark.