Tech and Semiconductor Stocks Reach New Highs on AI Demand

The AI-driven rally in the tech sector is showing no signs of slowing down, with the Nasdaq Composite Index (.IXIC.US) hitting a fresh intraday high on Friday. Nvidia (NVDA.US) and Advanced Micro Devices (AMD.US) also reached new all-time highs, while the PHLX Semiconductor Index (.SOX.US) surged by 2.4%. This upward momentum comes as weaker U.S. jobs data has reduced expectations for another near-term Federal Reserve rate hike.

The record prices alone do not signal the end of the rally. The fundamental driver remains strong AI infrastructure spending, with Nvidia leading in accelerated computing and AMD gaining investor confidence in its AI GPU roadmap. However, the bar for further gains has risen significantly. Stock prices now need to be supported by rising earnings estimates to justify their valuations.

Three key factors will determine the next phase of the rally. First, Taiwan Semiconductor (TSM.US) will release its September sales on October 8 and Q3 earnings on October 15. TSMC's guidance for Q3 revenue between $44.6 billion and $45.8 billion makes its outlook, AI demand, and capital expenditure commentary crucial for the semiconductor sector. Next, the earnings cycle of hyperscaler companies will be closely watched to see if cloud companies continue to increase AI capital expenditure. Finally, Treasury yields remain a wildcard, with the 10-year yield hovering above 5% and recently hitting a 24-year high of 5.34%. A sharp rise in yields could pressure semiconductor valuations despite strong AI fundamentals.

The semiconductor trend remains positive, with new highs indicating strong momentum. However, the next phase of the rally will be more challenging. If TSMC confirms strong demand, hyperscalers maintain high capex, and bond yields stabilize, the rally could continue. If earnings revisions stagnate, record valuations will leave little room for error.