What Happened?
A number of stocks jumped in the afternoon session after industry leader and peer AMD reported strong earnings, confirming that AI infrastructure spending is real.
AMD's Data Center revenue rose 57% year over year to $5.8 billion, beating estimates by $400 million. Chip companies sell into a supply chain: raw materials become wafers, wafers become chips, chips go into servers and devices. AI is currently driving nearly all of the industry's growth because building AI systems requires massive amounts of specialized chips, graphics processors and high-bandwidth memory in particular.
When a major chip company reports strong AI data center sales, it signals that the large technology companies building AI infrastructure, called hyperscalers, are still spending heavily. That spending flows through the entire supply chain, from wafer makers to packaging companies to the chip designers themselves.
The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.
Among others, the following stocks were impacted:
- Analog Semiconductors company Sensata Technologies (NYSE: ST) jumped 5.3%. Is now the time to buy Sensata Technologies? Access our full analysis report here, it’s free.
- Semiconductor Manufacturing company Applied Materials (NASDAQ: AMAT) jumped 3.7%. Is now the time to buy Applied Materials? Access our full analysis report here, it’s free.
Zooming In On Sensata Technologies (ST)
Sensata Technologies’s shares are quite volatile and have had 17 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.
The previous big move we wrote about was 19 days ago when the stock gained 5.8% on the news that the US-Iran ceasefire eased fears of a major disruption to global tech supply chains.
Semiconductors are the backbone of the modern economy, and any threat to global shipping lanes like the Strait of Hormuz creates immediate "scarcity premiums." With the strait reopened, the logistical path for raw materials and finished chips becomes far more predictable and cost-effective. The rally was also fueled by the continued "AI revolution," which remains a primary growth driver regardless of oil price swings.
However, the cooling of energy-driven inflation provides a more favorable backdrop for the massive capital expenditures required to build new fabrication plants. As the "geopolitical discount" evaporates, chipmakers are seeing strong buy-side interest across both the logic and memory markets.
Sensata Technologies is up 29.3% since the beginning of the year, and at $45.12 per share, has set a new 52-week high. Despite the year-to-date gain, investors who bought $1,000 worth of Sensata Technologies’s shares 5 years ago would now be looking at only $781.35.
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