Key Takeaways:
A Wall Street Journal analysis published May 16 warns that investors are misjudging the semiconductor cycle, a risk highlighted by divergent earnings from four chip-related firms that saw one company forecast 30 percent growth while another’s sales fell 7.5 percent.
"Applied Materials delivered record quarterly performance, and we now expect our semiconductor equipment business to grow more than 30 percent in calendar 2026,” said Gary Dickerson, President and CEO of Applied Materials.
The equipment maker’s results backed up the bullish sentiment, with Applied Materials (NASDAQ:AMAT) seeing revenue jump 11.4 percent year-on-year to $7.91 billion. In sharp contrast, Taiwan-based Himax Technologies (NASDAQ:HIMX) reported a 7.5 percent year-on-year revenue decline to $199 million, and Power Integrations’ (NASDAQ:POWI) five-year revenue growth is negative 4.2 percent annually.
The split results suggest the AI boom is not lifting all boats, creating a hazardous environment for investors who assume the entire sector is a monolith. While Applied Materials' market cap soared to $346.5 billion on its outlook, the combined market capitalization of Himax, Power Integrations, and Vishay Intertechnology is less than $12 billion, showing a stark valuation gap.
Applied Materials, the largest provider of semiconductor wafer fabrication equipment, is a clear beneficiary of the AI infrastructure buildout. The company beat analyst estimates on revenue and earnings per share by 2.7 percent and 6.6 percent, respectively. More importantly, its revenue guidance for the next quarter of $8.95 billion was 9.2 percent above what analysts were expecting, signaling a strong pipeline of demand from chipmakers expanding capacity.
The performance of Applied Materials is what most investors imagine when they think of the AI chip boom. The company’s five-year compounded annual growth rate of 7.9 percent is solid, but its CEO now expects the semiconductor equipment business to accelerate and grow more than 30 percent in the current calendar year, feeding the market’s bullish narrative.
Beneath the surface of the AI boom, however, a different story is unfolding for many other chip companies. While Himax, a maker of display driver chips, beat revenue expectations by 2.1 percent, its sales still fell 7.5 percent from the prior year. The company’s revenue has declined by an average of 5.2 percent annually over the last two years.
Similarly, Power Integrations, which specializes in high-voltage power conversion chips, has seen its revenue decline by 4.2 percent per year over the last five years. While its most recent quarter showed modest 2.6 percent year-on-year growth, it stands in stark contrast to the explosive growth seen at the top of the food chain. Vishay Intertechnology (NYSE:VSH) offered a middle ground, with 17.3 percent year-on-year growth but a mediocre 3.8 percent compounded annual growth rate over five years, below the sector average.
A key metric flashing warning signs is inventory. Days Inventory Outstanding (DIO) for Power Integrations came in at 289, which is 52 days above its five-year average. This suggests that despite a recent decrease, the company’s inventory levels are significantly higher than in the past, a potential signal of weakening demand or overproduction. In contrast, Applied Materials saw its inventory days outstanding fall to 146 from 153 in the previous quarter, showing its ability to move product.
The divergence highlights the core point of the Wall Street Journal's analysis: the semiconductor industry remains intensely cyclical. While a few high-profile companies like Nvidia and its key suppliers are experiencing unprecedented demand, many others are facing flat or declining sales and building up inventory. For investors, the data shows that betting on the "AI chip" theme requires a deeper look into which part of the cycle a company truly occupies.
This article is for informational purposes only and does not constitute investment advice.
