by Denise Chisholm, Director of Quantitative Market Strategy, Fidelity Investments
Semiconductors, as an aggregate industry, are now up roughly 100% over the past year and have outpaced the broader market’s rally over the last month by nearly 20%. On certain daily momentum measures, that acceleration is only comparable to periods seen in early 2000 - an uncomfortable historical parallel that naturally raises the question: too far, too fast? As always, context matters. If changing the timeframe completely changes the conclusion, the signal likely wasn’t as clear as it first appeared. Zooming out is especially important here, given how much time semiconductors spent moving sideways prior to the most recent surge. On a one‑year horizon, relative performance looks far less anomalous, and – critically - almost perfectly mirrors the acceleration in earnings growth. Stocks are up a lot, but so are fundamentals.
Extend the lens further and something even more unusual emerges for this group: over the medium term, earnings growth has actually outpaced price performance. That imbalance argues less for excess and more for a catch‑up dynamic. Historically, sustained two‑year momentum of this sort has tended to be a positive signal, not a contrarian one. The last time we saw a similar disconnect between earnings and price performance was in the mid‑1990s - right before semiconductors went on to outperform the S&P 500 for seven consecutive years.
Of course, strong earnings and strong performance do not automatically rule out excess. But here, valuation pushes back against that concern as well. The recent pullback reset semiconductor relative valuations back into the bottom quartile versus history - a level we haven’t seen in roughly four years. That matters, because this part of the valuation distribution has historically marked zones of support rather than peaks.
In fact, subsequent relative outperformance has followed roughly 77% of the time from similar starting points. This is the relationship we consistently look for: when semiconductor stocks are cheaper on a relative basis, the odds of future outperformance improve meaningfully. Put differently, the powerful tailwind from earnings growth is now paired with unusually constructive valuation support. So while a 20% burst of outperformance in a single month may feel extreme in isolation, the broader historical signals are unusually aligned - durable, atypical earnings growth alongside valuations that are far from stretched. In that context, it remains hard to argue for stepping away from the winners. As Peter Lynch once put it, “Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves.”
This information is provided for educational purposes only and is not a recommendation or an offer or solicitation to buy or sell any security or for any investment advisory service. The views expressed are as of the date indicated, based on the information available at that time, and may change based on market or other conditions. Opinions discussed are those of the individual contributor, are subject to change, and do not necessarily represent the views of Fidelity. Fidelity does not assume any duty to update any of the information.
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