Semiconductor ETFs lead 2026 returns as AI capex hits $670 billion

Semiconductor stocks have generated the strongest ETF returns in 2026, as hyperscaler capital spending on AI infrastructure surged 63% to an expected $670 billion, according to the Wall Street Journal. Memory chip makers — SanDisk, Micron Technology and Western Digital — have led the rally, with NAND flash prices rising as much as 234% this year, Gartner estimates show.

"The supply-demand imbalance in memory chips is the most acute we have seen in decades," Peter Cohan, senior contributor at Forbes, said. "Hyperscalers cannot build AI data centers fast enough, and they need every gigabyte of storage and bandwidth they can get."

SanDisk has signed $42 billion in multi-year supply agreements with data center operators, while Micron posted record quarterly revenue of $23.86 billion in its fiscal second quarter, up 196% from a year earlier. Western Digital raised hard disk drive prices 46% over the final four months of 2025 as demand for cost-effective bulk storage surged alongside AI model training data. Applied Materials, the largest wafer fabrication equipment maker, reported record quarterly revenue of $7.91 billion, up 11% year over year, and expects packaging revenue to grow more than 50% in 2026. Intel, meanwhile, received a $5 billion investment from Nvidia and had $8.9 billion in CHIPS Act funding converted to an equity stake by the U.S. government.

The question for investors is whether the rally has further to run or has already priced in years of growth. The high-bandwidth memory market is projected to expand at a 41% compound annual rate from $35 billion in 2025 to $100 billion in 2028, according to industry estimates. Micron, which crossed $1 trillion in market capitalization for the first time in May, trades at a price-earnings multiple below some chip peers — a potential sign of room to run. But Applied Materials now trades at 9.5x sales, a premium to the industry average, suggesting some froth has already entered the market. Dell's shares surged 32% in a single day last month after the company reported 757% demand growth for its AI-enhanced servers.

The SaaSpocalypse and the Rotation Out of Software

While semiconductor stocks have soared, software companies have been the biggest losers in 2026. The S&P 500 Software Index dropped 19% in February alone as investors feared AI agents would disrupt seat-based pricing models — a selloff dubbed the "SaaSpocalypse." Atlassian, Figma and Reddit have been among the hardest hit, with Figma down 83% from its post-IPO highs after facing direct competition from Anthropic's Claude Design tool. Atlassian has recovered 79% from its April low, but the broader software sector remains under pressure as investors reassess which business models AI will augment versus replace.

Can the Semiconductor Rally Sustain?

The durability of AI capital expenditure remains the single biggest variable for semiconductor stocks. Google, Microsoft, Amazon and Meta Platforms are expected to spend $670 billion on AI infrastructure this year, a figure that would need to keep rising to sustain current valuation multiples. A slowdown in spending — or a shift in AI model architecture that reduces memory requirements — could reverse the cycle as quickly as it began. For now, the supply crunch shows no signs of easing, with Gartner forecasting NAND flash memory prices could rise as much as 234% in 2026. The HBM market alone is growing at 41% annually, and memory chip supply constraints are expected to persist through 2028, according to industry analysts.

Broader Market Risks Loom

The semiconductor rally has unfolded against a backdrop of geopolitical uncertainty. Oil prices remain elevated due to the standoff in the Strait of Hormuz, keeping inflation above the Federal Reserve's 2% target. A new Fed chair, Kevin Warsh, faces pressure to balance inflation control against the risk of choking off the AI-driven growth cycle. If interest rates rise faster than expected, the high-multiple semiconductor stocks that have led the rally could face sharp corrections.

This article is for informational purposes only and does not constitute investment advice.