The chip index jumped 55% over the course of 2026, a rally that has left some fund managers uneasy. They point to what they see as unsustainable valuations tied to the artificial intelligence boom. The gains have been broad, lifting semiconductor companies that supply the processors powering AI systems.
The 55% climb
The benchmark index tracking chipmakers has more than recovered from earlier slumps. It ended the year at a record high, driven by demand for AI chips and data center hardware. The rally accelerated in the second half of 2026 after several big tech companies announced expanded AI infrastructure spending.
Companies that design and manufacture chips for AI training and inference saw the biggest jumps. The index’s 55% gain outpaced the broader market by a wide margin. The surge came even as some chip stocks had already tripled over the previous two years.
Why fund managers are worried
Several fund managers have privately expressed concern that the run-up has gone too far. They argue that the valuations of many AI-related chip stocks now assume years of hypergrowth — growth that may not materialize if AI adoption slows or if competition erodes margins.
“We’re seeing price-to-earnings ratios that are hard to justify with current earnings,” one fund manager told a conference in December. The manager, who asked not to be named, said his firm has been trimming positions in high-flying chip names. Another manager, speaking at a separate investor event, warned that the market is pricing in a “perfect scenario” for AI that leaves little room for error.
The concerns are not universal. Some analysts argue that the AI chip market is still in its early stages and that the revenue potential justifies the multiples. But the worry among a growing number of fund managers is that the 55% index gain in a single year has created a bubble in the sector.
What’s driving the index
The chip index is heavily weighted toward a handful of companies that dominate AI chip production. Their earnings have consistently beaten expectations, but the stock price gains have often exceeded the earnings growth. That gap is what fund managers find troubling.
The index also includes smaller firms that supply equipment or materials for chip manufacturing. Those stocks have risen on the expectation that AI demand will fuel a multiyear building cycle for fabs. But some fund managers question whether the spending will be sustained once the initial wave of data center construction is complete.
What happens next
The first quarter of 2027 will be a test. Several major chip companies are due to report earnings in the coming weeks. Fund managers will be watching for signs that AI-related revenue is accelerating enough to support current valuations. If earnings disappoint, the 55% gain could give way to a sharp pullback. If they beat expectations again, the rally may have room to run. Either way, the debate over AI valuations is far from settled.
