SOXX Hits All-Time Highs as MU Gross Margins Exceed 70% on HBM3E Constraints

The iShares Semiconductor ETFExchange-Traded Fund - a basket of securities trading like a single stock. (SOXX) has reached all-time highs in late May 2026, driven by a wave of strong earnings from NVDA, AVGO, MU, and chipmaking-equipment suppliers including AMAT and LRCX. The rally reflects genuine AI capex strength: NVDA posted record data-center GPU orders, and memory-chip suppliers like MU have seen gross margins exceed 70% on HBM3E supply constraints. Yet beneath this rally sits a widening valuation and growth-assumption risk that few are pricing in.

The debate over AI capex saturation has sharpened this week. Industry observers note that major cloud providers (MSFT, GOOGL, AMZN) have signaled capex discipline after two years of explosive spending, citing slowing ROI on large language models and the need to prove out foundation model monetization pathways. SoftBank's EUR 75 billion France data-center commitment, announced May 31, adds supply but also forces the industry to question whether demand will absorb all the capacity being built. If capex growth moderates from 40-50% to single digits, chip stocks' current forward multiples compress sharply.

Semiconductor valuations are priced for a best-case scenario: uninterrupted AI capex growth, no surprise competition from custom silicon (AMD, INTC have both missed guidanceCompany-issued forecasts of future financial performance.), and pricing power that persists as supply normalizes. In reality, chips exhibit cyclical margin compression once supply begins to catch demand. Historical precedent from 2018-2019 semiconductor downturns shows sector drawdowns of 30-40% when capex inflection occurs, often faster than consensus expects.

Bull-case arguments rest on the durability of AI demand and the structural shortage of trained chips. However, if capex growth disappoints or turns negative in 2027, the sector's valuation multiples have limited support and could revert to historical averages, pressuring NVDA, AVGO, MU and the broader SOXX complex.