Micron Technology Inc. (NASDAQ:MU) and Broadcom Inc. (NASDAQ:AVGO) have pulled back roughly 25% from recent record highs, creating what UBS views as a more attractive entry point across semiconductor stocks.
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The decline comes after a powerful rally driven by AI demand and data center spending. Despite the recent volatility, UBS argues the broader setup in semiconductors remains fundamentally strong rather than speculative.
UBS Says It’s Not A Bubble
"Semis valuations remain far from bubble territory. Despite the strong semiconductor rally this year, forward price-to-earnings multiples for the Philadelphia Semiconductor index at around 26x today are well below the 150x level at the peak of the dotcom cycle," UBS wrote.
The firm emphasizes that earnings growth continues to support current valuations. The Philadelphia Semiconductor Index, often tracked via funds like iShares Semiconductor ETF (NASDAQ:SOXX), has seen profits rise alongside share prices rather than lag behind them.
"With earnings largely keeping pace with share prices, we remain constructive on the semis complex. Consensus estimates currently imply earnings growth of 92% for the index this year and a further 40% in 2027," UBS said.
Micron remains closely tied to memory pricing cycles, with high-bandwidth memory demand benefiting from AI server buildouts. Pricing discipline and constrained supply have helped stabilize margins, and the stock’s recent pullback reflects broader sector rotation more than company-specific weakness.
Broadcom, a SOXX heavyweight, continues to benefit from custom AI chip demand and infrastructure software exposure. Its diversified revenue base has made it a key proxy for AI monetization, and the stock’s retracement follows a sharp run-up rather than a deterioration in fundamentals.
The Takeaway
UBS contrasts the current environment with the late-1990s dot-com era, when valuations expanded far ahead of earnings.
Current multiples, while elevated relative to historical averages, remain grounded in tangible growth expectations tied to AI, cloud, and advanced computing.
The firm’s outlook suggests the recent correction may represent consolidation within a longer-term uptrend rather than a signal of excess.
Lower entry points for leading names such as Micron and Broadcom may draw renewed interest from investors seeking exposure to semiconductor growth themes.
While macro risks and rate expectations can still drive short-term swings, UBS maintains that the sector’s earnings trajectory provides a stronger foundation than in past speculative cycles.
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