The semiconductor sector is sending mixed signals to investors as we cruise through September 2025. With AI-hungry tech giants pledging to spend £240 billion ($300 billion) on infrastructure this year alone, chip stocks should be flying high. Yet beneath the surface, a tale of winners and losers is unfolding that could make or break portfolios.
The paradox? While NVIDIA’s shares have rocketed nearly 200% over the past year, the median semiconductor stock is actually down. It’s a stunning divergence that has left many investors wondering: Are we witnessing the birth of a trillion-pound industry or the inflation of a dangerous bubble?
The AI Gold Rush
Morgan Stanley’s bombshell prediction has set tongues wagging in the City: Microsoft, Amazon, Alphabet, and Meta Platforms will splash out a combined £240 billion on AI data centre infrastructure and chips during 2025. That’s not pocket change – it’s nation-building money being poured into silicon and servers.
“We’re tremendously optimistic about Nvidia’s growth,” says Brian Colello, Morningstar’s semiconductor strategist. The hyperscalers – tech’s biggest spenders – have unveiled capital expenditure plans that are “at or above what I would have expected.
The numbers back up the enthusiasm. Global semiconductor sales hit £47.2 billion ($59 billion) in May 2025, surging 19.8% compared with the same period in 2024, according to the Semiconductor Industry Association. Deloitte predicts the industry will smash through £557.6 billion ($697 billion) in sales this year, well on track to reach the holy grail of £800 billion ($1 trillion) by 2030.
But here’s the rub: this feast isn’t feeding everyone equally. The disparity between AI winners and traditional chip makers has never been starker.
The Magnificent Few
NVIDIA: The £2.7 Trillion Gorilla
Trading at a P/E ratio of 49.6 – below its 10-year average of 52.8 – NVIDIA remains the undisputed king of AI chips. Its share price of £139 ($174) might seem breathtaking, but analysts aren’t backing down. The company’s data centre revenue is growing by £3.2 billion ($4 billion) every quarter, like clockwork.
Nvidia is consistently growing its data centre revenue by $4 billion a quarter,” notes Colello. “While 2025 spending might be great, 2026 is becoming a bit fuzzy.”
The concern? The law of large numbers. As NVIDIA approaches a £3 trillion market cap, those eye-watering quarterly beats that sent shares soaring are getting harder to deliver. Fast money is flowing in and out of the stock daily, creating volatility that would make a crypto trader dizzy.
TSMC: The Silent Giant Under Pressure
Taiwan Semiconductor Manufacturing Company faces a unique challenge. While its share price has climbed 68.6% over the past three months, the world’s largest contract chipmaker sits at the epicentre of U.S.-China tensions.
The company, which produces 90% of the world’s most advanced chips, recently announced it would invest £80 billion ($100 billion) in new U.S. facilities. It’s a move that has Taiwanese politicians crying foul about weakening the island’s “silicon shield” – the theory that Taiwan’s chip dominance protects it from Chinese aggression.
“If TSMC turns into ‘American Semiconductor Manufacturing Company’, where will Taiwan’s security be then?” asked opposition lawmaker Fu Kun-chi.
ASML: The Monopolist’s Dilemma
Dutch equipment maker ASML holds a monopoly on extreme ultraviolet (EUV) lithography machines – the £150 million behemoths required to make cutting-edge chips. Management expects 15% revenue growth in 2025, and the company just announced a confident 10% share buyback.
Yet ASML shares have been flat this year, caught between booming AI demand and restrictions on selling to China. It’s a reminder that even monopolies aren’t immune to geopolitical headwinds.
AMD and Intel: The Fading Stars
Advanced Micro Devices, once NVIDIA’s primary rival, has seen its shares tumble 18% this year despite launching AI chips. Intel’s fall has been even more dramatic – down 60% as it struggles with manufacturing delays and market share losses.
“I rarely mention Intel when discussing the semiconductor sector because so many of its problems, and perhaps opportunities, are company-specific,” admits Colello.
The Geopolitical Wildcard
The elephant in the boardroom is the escalating U.S.-China tech war. President Trump’s expanded export controls have forced Samsung and SK Hynix to halt capacity expansions in China, wiping 56% off Samsung’s operating profit in Q2 2025.
China orders companies to halt NVIDIA chip orders,” screamed recent headlines, as Beijing retaliates against U.S. restrictions. The tit-for-tat has investors on edge, particularly given Taiwan’s precarious position.
Academic research from ScienceDirect warns that Taiwan’s semiconductor supply chain would be “particularly vulnerable to a quarantine initiated before 2027.” With TSMC producing chips that power everything from iPhones to AI servers, any disruption could send shockwaves through global markets.
ETFs: The Safer Bet?
For investors seeking exposure without the single-stock risk, semiconductor ETFs offer an intriguing alternative.
SOXX vs SMH: Battle of the Titans
The iShares Semiconductor ETF (SOXX) and VanEck Semiconductor ETF (SMH) dominate the space, each managing around £5.6-5.9 billion ($7.2-7.4 billion). Both charge identical 0.35% expense ratios, but their approaches differ subtly.
SOXX holds 31 positions with its top 10 accounting for 59.7% of assets. SMH is more concentrated, with just 26 holdings and 65.5% in its top 10. Crucially, SMH gives NVIDIA a whopping 15% weighting compared to SOXX’s more modest 10%.
“Nvidia has been a great stock over the years, but a position of nearly 10% in it, like SOXX has, seems sufficient; 15% seems a bit overboard,” notes one analyst. SOXX’s average P/E of 20.6 also edges out SMH’s 22.8.
Year-to-date, SMH has gained 17.9% versus SOXX’s 13.7%, but concentration risk looms large if NVIDIA stumbles.
The Investment Playbook
Long-Term Vision vs Short-Term Volatility
The semiconductor story remains compelling for patient investors. NVIDIA CEO Jensen Huang believes data centre operators will spend £800 billion ($1 trillion) upgrading infrastructure over the next few years. That’s not hype – it’s happening now.
But timing matters. “Yesterday’s laggards are likely tomorrow’s winners and vice versa,” warns one industry observer. Automotive chip makers, devastated in 2024, could rebound as AI enthusiasm cools.
Winners and Losers Framework
Likely Winners:
- AI Chip Leaders: NVIDIA, despite volatility, remains the picks-and-shovels play on AI
- Manufacturing Monopolies: TSMC and ASML control irreplaceable technology
- Diversified ETFs: SOXX offers broader exposure with less concentration risk
- Memory Specialists: Micron Technology benefits from AI’s insatiable data appetite
Potential Losers:
- Yesterday’s Heroes: Intel struggles to stay relevant in the AI era
- China-Exposed Names: Companies with significant Chinese operations face regulatory whiplash
- Automotive Specialists: Traditional chip markets suffer as AI sucks up investment
- Overhyped Startups: Many AI chip challengers will fail to dent NVIDIA’s dominance
Red Flags to Watch
Smart money is monitoring several warning signs. If U.S. hyperscaler capital spending peaks, it could trigger a sector-wide selloff. China’s retaliation against U.S. tech restrictions adds another wild card, while any Taiwan Strait tensions would send semiconductor stocks into freefall.
Valuations matter too. While SOXX trades at a P/E of 20.6 – below the S&P 500’s 23.9 – individual stocks vary wildly. NVIDIA at 49.6 times earnings looks reasonable against its history, but leaves little room for disappointment.
Key Takeaways
• AI Infrastructure Spending Remains Robust: Tech giants’ £240 billion commitment in 2025 underpins continued growth, though 2026 visibility is hazier
• Concentration Risk is Real: NVIDIA’s dominance means the entire sector’s fortune increasingly rides on one stock’s performance
• Geopolitical Tensions Escalating: U.S.-China semiconductor restrictions are reshaping supply chains and crushing profits at exposed companies
• ETFs Offer Safer Exposure: SOXX provides better diversification than SMH, with lower concentration risk and reasonable valuations
• Long-Term Fundamentals Intact: Despite volatility, the march toward £800 billion in chip sales by 2030 appears unstoppable as AI transforms every industry
The semiconductor sector in 2025 presents a classic risk-reward dilemma. The AI boom is real, the money is flowing, and the technology is revolutionary. But concentration risk, geopolitical tensions, and stretched valuations in pockets of the market demand careful navigation. For most investors, diversified ETF exposure combined with selective positions in industry leaders offers the best path to profit from the silicon revolution without betting the house on any single chip.
