There is no hotter trade in the market right now than AI and Semiconductor stocks, which have been racing higher. And after the move we’ve seen over the past month, I think it’s worth stepping back and asking an honest question: Has this run come too far, too fast – or is the underlying story so powerful that the only mistake would be not buying these hot stocks?
The data on both sides of this trade is genuinely compelling. Let’s walk through it.
The Move That Has Everyone Talking
Start with the Semiconductor ETF (SMH). The SMH has been up 24 out of the last 28 days. And during those 28 days, the SMH has rallied 50%!
This is the kind of one-directional momentum that tends to attract more and more capital as it unfolds – latecomers piling in, shorts getting squeezed, and options market makers scrambling to hedge. It becomes a self-fulfilling prophecy as traders chase these stocks higher and higher.
So Why Are the Bulls So Confident?
Here’s where it gets genuinely interesting …
Goldman Sachs estimates that the five largest AI hyperscalers will spend $755 billion on capital expenditures in 2026 alone – an increase of 83% year over year. And Morgan Stanley pushes that estimate even higher, seeing the group top $800 billion this year on their way to $1.1 trillion in 2027.
To put $1.1 trillion in context, that figure would exceed the projected American spending on national defense!
The critical question, of course, has always been: Is all this spending generating real revenue?
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The Revenue Story Is Starting to Catch Up
According to the Financial Times, Anthropic’s annualized revenue is on track to cross $45 billion – a fivefold increase from the $9 billion run rate it was carrying at the end of last year. A fivefold increase. In a matter of months.
Now, Anthropic is a private company and a single data point. But it’s a data point that speaks to something broader: AI applications are moving past the “cool demo” stage and into enterprise deployment at scale. Companies are paying.
A Warning from Bank of America
But the SMH momentum isn’t the only thing worth watching carefully.
Bank of America has flagged something arguably more structural: concentration in what they’re calling the “AI Big 10” – the Magnificent 7 plus Broadcom (AVGO), Micron (MU), and Advanced Micro Devices (AMD) – is now approaching the kind of peak levels that have historically preceded meaningful market tops.
This is a different kind of warning than “the chart looks extended.” Concentration risk is a structural problem. When a small handful of names account for an outsized share of total S&P 500 market cap, the market loses its cushion. A rotation out of just a few of these names doesn’t just hurt those stocks – it sends ripples through everything.
The Rest of the Market
Another concern is that while the AI and Semiconductor stocks are racing higher, “the rest” of the market is doing just ok.
As noted by @bespokeinvest on Tuesday: “Yesterday, on a day that the S&P 500 closed at another all-time high, nearly 8% above its 50-DMA, there were more new 52-week lows in the index than new 52-week highs (42 to 39), and the % of stocks above their 50-DMAs dropped below 50% (48.6%).”
Two Truths at the Same Time
So where does that leave us? I think we’re looking at a situation where two things can be true at once.
The AI trade is extended. The SMH move is historic. Concentration levels are flashing caution. Any serious pullback trigger – a disappointing earnings report from a hyperscaler, a shift in Fed tone, a geopolitical shock – could send this group down 15–20% in a hurry.
And while there are risks, the infrastructure investment is real, the revenue acceleration is happening and the companies doing the spending are not acting like they’re spooked.
Stepping back, my read is this is a theme you need to have exposure to, but to go all in after such a monster run in AI stocks could be extremely painful if/when the music stops.
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