Advanced Micro Devices (AMD) has just wrapped up one of its best months in two decades. In May of this year, AMD’s stock price soared more than 40%, hitting an all-time high, as investors rushed back into chipmakers driven by sustained demand for AI hardware. AMD is not alone. Qualcomm, a smartphone chip designer, also saw its stock rise by about 40%, reaching a record high. The broader Philadelphia Semiconductor Index has gained over 60% this year, far outpacing the S&P 500.
After such a significant rally, investors heading into summer face a legitimate question: can the momentum continue, or have stock prices finally moved ahead of the underlying business?
For many chip companies underpinning these stock prices, the underlying business does appear to match the stock gains. Take AMD as an example. The company gave investors plenty to like when it reported first-quarter results in early May. Revenue grew 38% year-over-year to $10.3 billion, with the data center segment soaring 57% to a record $5.8 billion, driven by demand for EPYC server processors and Instinct GPUs. Its non-GAAP adjusted earnings per share rose 43%, and management expects second-quarter revenue of approximately $11.2 billion, implying year-over-year growth of about 46%.
Custom chip designer Broadcom (AVGO) has also ridden this wave, but from a different angle. In the first quarter of fiscal 2026 (ended February 1, 2026), revenue increased 29% to a record $19.3 billion, with AI revenue more than doubling, rising 106% year-over-year to $8.4 billion, thanks to demand for custom accelerators and networking chips built for the largest cloud companies. The company currently has six major custom AI chip customers, expects second-quarter revenue of approximately $22 billion, up 47% year-over-year, and will report results on June 3.
However, Qualcomm’s (QCOM) surge in May is somewhat different. Its stock rise was based on more speculative news. In late May, Bloomberg reported that the company had reached an agreement to supply millions of custom chips for AI data centers to ByteDance, the owner of TikTok—marking one of the first major customers for its product line aiming to go beyond smartphones. Neither party has confirmed the deal, but the stock rose on the news. Additionally, investors appear to be realizing that Qualcomm could be a beneficiary as AI moves into the physical world.
As of now, AMD’s forward price-to-earnings ratio is around 69 times, while Broadcom’s forward P/E exceeds 40 times—valuations that assume AI buildouts will continue for years without setbacks. Qualcomm’s stock is much cheaper, with a forward P/E of about 21 times. But there is a reason for this relative discount: its core business is actually shrinking. In the second fiscal quarter (ended March 29), revenue fell 3% year-over-year, phone chip sales dropped 13%, and adjusted earnings per share declined about 7%. Management also expects a sequential decline in the current quarter. Driving Qualcomm’s stock are investor bets that the reported ByteDance deal will succeed and that its chip sales will grow significantly as AI moves into end devices.
Overall, strong quarterly results and optimistic outlooks may carry the sector’s momentum into summer; any hint of cooling demand could have the opposite effect. Either way, even if stock prices take a breather, the underlying businesses themselves still appear healthy enough to continue growing. For investors, the biggest risk is not a sudden drying up of AI demand, but rather that, at current valuations, merely “pretty good” results may no longer be enough to support further stock price increases. Rather than chasing highs, perhaps exercising some patience is the wiser choice.
