- The PHLX Semiconductor Sector Index surged over 71% in 2026 amid AI-driven market gains
- Debt-heavy AI firms like Oracle face pressure as interest expenses and bond yields rise
- High valuations make chipmakers like AMD and Intel vulnerable to profit disappointments
The AI trade has certainly been a defining theme of the equity market trade in 2026, particularly at the Wall Street, where semiconductor stocks topped the charts whenever the US stock market witnessed a climb. The rally has been broadbased, as reflected in the 71%-plus climb in the PHLX Semiconductor Sector Index in the year so far.
Despite the crude oil jitters and the geopolitical upheavels, the AI boom hasn't slowed down, with AI hot-bet Nvidia and the tech-heavy Nasdaq logging fresh all-time highs as late as this week. Yet, one factor that could dampen the AI trade finally is debt, as rising US bond yields raise a cloud over the sector as a whole.
The Treasury yields have scaled to their highest since 2002, with the 10-year peaking at about 5.35% this week and the 30-year came close to 5.7%.
Kranthi Bathini, equity strategist at WealthMills Securities, told NDTV Profit that further rises in yields could hit momentum stocks, which could slow down AI and semiconductor trade. “If yields rise beyond 6%, it's going to have an adverse impact on global equity universe, including the US stock market. The stocks that have seen momentum in recent period, particularly the chip stocks, will come under pressure and the trade is likely to slow down,” he said.
Not every AI stock, however, faces the same risk. The vulnerability depends on how a company is funded, how it is valued and how cyclical its earnings are.
The Debt-Funded Builders
The most exposed group is the companies borrowing heavily to build AI capacity. A Bloomberg report dated October 8 said nearly $500 billion of AI-related debt has been priced this year. This comes after JPMorgan projected in June that about $4.1 trillion would be issued through 2030.
Oracle is a stock that may come under pressure. Its quarterly interest expense reportedly rose 55% from a year earlier to $1.43 billion, and its shares were down about 30% for the year as of late September. Its 2066 bond yields about 8.45%, according to 24/7 Wall St. report.
CoreWeave is similar. Its filings reportedly say every 100-basis-point rise in rates could add $30 million to its interest costs on floating-rate debt. Its quarterly interest expense more than doubled to $640 million in the June quarter and is guided to between $860 million and $940 million for the September quarter.
Broadcom has also drawn attention. It is reported to be seeking more than $50 billion for custom chips it is building with OpenAI. The cost of insuring its five-year debt against default has widened to a record 136 basis points, according to the Bloomberg report.
ALSO READ: Yields At 2002 Highs: Is 6% The Line That Could Shake Global Equities, And Who Gets Hit First?
Rich Valuations
The second group is chipmakers priced for growth. Forward price-to-earnings multiples of 57 for AMD and 78 for Intel, according to Motley Fool data, leave little room for disappointment.
When yields rise, such stocks tend to fall furthest because their value depends on profits many years away.
The Cyclical Surprise
Micron looks cheap on paper, at about six times forward earnings. But the stock has risen roughly 460% in a year and trades at about $1,036, around 17% below its 52-week high.
Cheap multiples can mislead in memory chips. Analysts note that investors tend to put low multiples on memory stocks when profits are at a peak. Micron's beta of 2.23 means it moves much more than the broader market. In July, when AI valuations were questioned, it fell over 20% within a month.
Who Looks Better Placed
Nvidia is the least stretched on valuation. It trades at about 19.9 times forward earnings, slightly below the S&P 500's 20.3, and its shares are up only about 20% this year. However, its risk is size, as it makes up around 18% of the VanEck Semiconductor ETF, so any chip selloff reaches many portfolios.
Microsoft, Alphabet, Amazon and Meta can borrow cheaply because of their investment-grade ratings. Together they are expected to spend about $725 billion on capital projects this year, according to the Financial Times, which is what keeps chip demand strong.
The Bull Case And What To Watch
Not everyone sees danger. Bank of America's Vivek Arya pointed out that the semiconductor index trades at about 21 times forward earnings, 12% below its median since ChatGPT launched. The earnings growth is expected to stay above 40%, he was cited as saying in a Yahoo Finance article on Oct. 1.
Several things could determine the trajectory ahead. Inflation and oil prices, which Bathini says will determine how long yields stay high, come first. Whether yields cross his 6% mark is next on his watch, as crossing this threshold will likely put global equities under pressure globally, he said.
Investors and sectoral watchers would also keep a keen eye on Oracle's earnings on December 14, which will show how its borrowing costs are holding up.
ALSO READ: Fed Minutes Show Hawkish Unity Behind September Rate Hike
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.