Chip Stocks Are On Fire — Will It Last?

Semiconductors just posted their best quarter ever. The Philadelphia Stock Exchange semiconductor index rose 82% in the second quarter and is up 94% so far this year. Western Digital is up 240% year to date, Micron is up 310%, and Sandisk is up more than 700%. Semiconductors now make up a fifth of the entire S&P 500. But the rally hasn't been entirely smooth — chip stocks fell 8% in their worst week since April 2025. The stunning run-up and the turbulence along the way leaves investors with one big question: how long can this semiconductor boom actually last?

The Bottleneck Playbook

According to Stacy Rasgon, senior analyst at Bernstein, the semiconductor rally has been driven by AI demand, but not in the way most people assume. The obvious AI winners like Nvidia and Broadcom, which make the actual AI accelerators, have actually had the worst performance in the sector. They're up, but not nearly as much as the rest. Instead, investors have been playing the so-called bottlenecks. As Rasgon explains, "as AI has grown, you've been sort of hitting the limits of what they can supply and then prices go up. Semi investors love to play bottlenecks."