Chip Stocks Are Now Cheaper Than the S&P 500 — Something Unseen During the Entire AI Boom

For three years, investors paid extra for one thing above all else: exposure to the chips powering artificial intelligence.

That premium is gone.

The PHLX Semiconductor Index, tracked by the Invesco PHLX Semiconductor ETF (NASDAQ:SOXQ), now trades at 13.7 times expected earnings over the next 12 months, Bank of America analyst Vivek Arya said in a note shared Friday. The S&P 500 trades at 17.7 times.

That puts chipmakers at a 22% discount to the broader market. During the AI cycle, the same group commanded a 15% premium, according to Arya.

The Chip Selloff Left the Rest of Wall Street Untouched

The SOX peaked at 14,634.72 on June 22. By Thursday’s close, it had fallen to 9,011.14, a 38% decline in 136 days.

The S&P 500 lost 2% over the same stretch.

That gap has no match in the four previous semiconductor downturns tracked by Bank of America. In 2011, 2015-16, 2018 and 2022, chip stocks fell between 23% and 46%, and the S&P 500 fell with them, losing between 12% and 25%.

Chips bounced on Friday. The SOX rose 4.9% and the VanEck Semiconductor ETF (NASDAQ:SMH) gained 4.3%, yet the index remains 35% below its June peak.

Why Chip Stocks Got Cheap: A $355 Billion Question

U.S. cloud providers are spending about $300 billion per quarter, or $1.2 trillion annualized, according to Bank of America. Consensus expects $1.55 trillion in 2027.

If spending simply holds at today’s pace, 2027 would come in 23% below expectations, a gap of about $355 billion.

According to Arya, a 20% capex cut in 2027 would mean a sales hit of more than 20% for AI chipmakers and an earnings hit of 35% to 40% or more.

Is the Earnings Reset Already Priced In?

“Overall, today’s discount already embeds sizable cycle skepticism,” Arya said in the note.

In past cycles, the SOX bottomed near 12 times forward earnings. A return there would imply at most another 12% of downside, Arya noted.

However, cheap valuations may not be enough. According to Arya, investors will likely need to see actual earnings cuts before confidence returns, and he sees those cuts starting in the first quarter of 2027.

The four previous downturns lasted 253 days and erased 32% on average, before the index gained 41.8% the following year.

Where Bank of America Sees the Winners

In its baseline case, with a bottom in the first quarter of 2027, the best names in each segment lead, including Lam Research Corp. (NASDAQ:LRCX), Nvidia Corp. (NASDAQ:NVDA), Broadcom Inc. (NASDAQ:AVGO), Micron Technology Inc. (NASDAQ:MU) and Texas Instruments Inc. (NASDAQ:TXN).

If the downturn drags into mid-2027, chip-design software makers Cadence Design Systems Inc. (NASDAQ:CDNS) and Synopsys Inc. (NASDAQ:SNPS) should hold up better. In a sharp recovery, high-beta names such as Micron and Advanced Micro Devices Inc. (NASDAQ:AMD) would lead.

The past month already shows that split. Lam Research and Micron lost more than 30%, while Texas Instruments slipped less than 5%.

Company	Price	1-month	YTD	BofA scenario
Nvidia	$191.38	-19.5%	+0.8%	Baseline
Broadcom	$300.25	-19.4%	-14.9%	Baseline
Micron Technology	$701.01	-31.1%	+137.5%	Baseline, Bull
Lam Research	$202.28	-37.2%	+13.7%	Baseline
Advanced Micro Devices	$446.05	-29.7%	+103.8%	Baseline, Bull
Texas Instruments	$277.04	-4.6%	+58.3%	Baseline, Bear
Cadence Design	$311.49	-13.1%	-1.3%	Bear
Synopsys	$442.85	-12.4%	-7.5%	Bear

The discount shows investors have stopped paying extra for the AI story.

Whether the market has cut deep enough depends on a number no one has yet: how much the hyperscalers actually spend in 2027.

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