Micron (MU) and Broadcom (AVGO) Plunge 25%... "Not a Bubble, But a New Buying Opportunity"

▲ Artificial Intelligence (AI) Memory, Semiconductor, US Stock Market / AI Generated Image

Micron Technology (MU) and Broadcom (AVGO) recently fell about 25% from their all-time highs, but UBS issued a strong diagnosis that this is not a collapse of the semiconductor bubble but rather the opening of a new buying opportunity.

According to economic news outlet Benzinga on July 8 (local time), UBS assessed that semiconductor stock valuations are "far from bubble territory." The 12-month forward price-to-earnings ratio of the Philadelphia Semiconductor Index is approximately 26x, significantly below the 150x seen at the peak of the dot-com bubble.

UBS stated, "We maintain a positive outlook on the semiconductor sector as corporate earnings are largely keeping pace with stock price increases." Market forecasts anticipate a 92% increase in semiconductor index earnings this year, with an additional 40% increase by 2027. UBS analyzed that the current situation differs from the late 1990s, when stock prices soared disconnected from earnings.

Micron is benefiting from the demand for high-bandwidth memory due to the expansion of artificial intelligence (AI) servers. Supply constraints and price controls have contributed to stabilizing profitability. UBS evaluated the recent stock price adjustment as being linked to capital shifts within the semiconductor sector rather than a weakening of the company itself.

Broadcom is benefiting from demand for custom AI semiconductors and its infrastructure software business. Its diverse revenue base also supports the assessment that it is a key stock reflecting the trend of AI monetization. The recent stock price retreat is also analyzed as a strong correction after a rapid surge, rather than a deterioration in fundamentals.

UBS stated that expectations for growth in AI, cloud, and advanced computing form the basis of current semiconductor valuations. Macroeconomic risks and interest rate outlooks could increase short-term volatility. However, it assessed that the earnings growth trajectory of the semiconductor sector provides a stronger foundation than past speculative markets.

[Key Article Summary]

-Micron and Broadcom recently dropped about 25% from their all-time highs, but UBS assessed that a new buying opportunity has opened.

-The forward price-to-earnings ratio of the Philadelphia Semiconductor Index was approximately 26x, significantly below the 150x seen at the peak of the dot-com bubble.

-UBS refuted the bubble theory, citing market forecasts that semiconductor index earnings will increase by 92% this year and an additional 40% by 2027.

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