It’s a split-screen environment for investors.
On one side is nothing short of exuberance in artificial intelligence infrastructure stocks, further evidenced by last week’s IPO of AI semiconductor maker Cerebras CBRS. The company’s valuation had already doubled over the past three months and then saw another 185% jump on the stock’s first day of trading. On the other side, that same day brought a selloff in the bond market, driving yields higher amid fresh warning signs about the outlook for inflation.
The huge rally in chip stocks shows both parallels and differences when it comes to 1999’s dot-com stock surge that culminated in the tech-bubble collapse. This week’s markets brief also digs into the messages being sent from the bond market, where inflation worries are bubbling up. Circling back to chips, read on for what to watch when Nvidia reports earnings after the close on Wednesday.
Semiconductor Stocks: 1999 vs. Today
Morningstar’s Chief US Market Strategist David Sekera recently pulled together a list of stats about the massive rally in semiconductor stocks. Among the US stocks covered by Morningstar analysts, here’s what happened since the end of 2024 through May 8 this year:
- Sixty-three stocks have 100%-plus returns, and roughly half are directly tied to the AI buildout.
- Eighteen have a 200%-plus return.
- Eight have a 300%-plus return.
- Of the top 10 returning stocks, nine are AI stocks.
And so far in 2026, 12 stocks have doubled or more in value—and 11 of those are AI stocks.
Comparisons to the 1999 dot-com bubble have been tossed around since the AI boom took off three years ago. There are some similarities, starting with the fact that, like the early commercialization of the internet, AI is a transformative technology with implications across the economy. Within the stock market, Sekera highlights others:
- The market is being driven by stocks most closely tied to supplying the hardware needed for building data centers and technological infrastructure.
- A significant portion of total market capitalization is concentrated in just a handful of stocks.
- Traditional valuation metrics are very high relative to current earnings.
That said, Sekera notes that the fair value estimates from Morningstar’s equity analysts tell a different story.
“Morningstar’s current price/fair value metric indicates that the broad market is trading at a few percent discount as compared to a composite of our fair values,” he says. “While the technology sector has rallied significantly this year, that rally has been justified. Morningstar’s equity research team has increased fair values within the sector as the visibility into the longer-term structural growth for the sector lengthens further into our base-case assumptions. In fact, a number of stocks most closely correlated with the AI buildout boom, such as Nvidia NVDA, remain undervalued today, even after a large runup in their stock prices.”
Sekera says that the bullish valuation story isn’t the case across the board, however.
“There are many cases we think investors are overly exuberant in their growth estimates,” he says. ”For example, stocks for commodity-oriented technology hardware such as Sandisk SNDK and Micron MU have run up too far as compared to their intrinsic valuations.”
What’s Driving Bond Yields Higher?
While stocks are trading near record levels, bond yields are hitting their own recent high as prices plummet. The yield on the US Treasury 30-year bond pushed solidly through the 5% mark, and the yield on the 10-year note, the basis for mortgages and other consumer lending, finished the week around 4.6%. In both cases, that’s the highest in about a year. Inflation sparked by the Iran-war-driven jump in gas prices is one key worry. Last week’s April Consumer Price Index report showed signs of upward pressure on prices moving beyond energy costs.
While inflation is one reason for the bond market’s selloff and higher yields, it isn’t the only one, says Dominic Pappalardo, Morningstar Wealth’s chief multi-asset strategist. Beyond inflation, Pappalardo points to “expectations for significantly more Treasury bond issuance focused on the longer end of the curve as well as more minor factors like the return of ‘term premium’ where investors require additional compensation for holding longer-dated debt.”
The ballooning federal budget deficit hasn’t been in the headlines much, but in the bond market, it has a direct impact when it comes to the amount of debt that the government needs to sell.
Here’s more of what Pappalardo has to say about how the deficit is feeding into higher bond yields:
Expectations regarding increased US Treasury issuance put technical upward pressure on yields, as it may be difficult for investor demand to scale up commensurate with supply increases. The federal government deficit is projected to be $2 trillion for 2026, which will push the total national debt up to $39 trillion. In more understandable budget terms, this is the equivalent of a household with an annual income of $100,000 spending $136,000, or a $3,000 per month shortfall while already carrying around $700,000 in debt.
For better or worse, the government can continue growing its debt burden as it controls the money supply and has taxing authority, whereas the household would likely be stopped out at some point, as lenders will refuse to extend additional credit. The known need for additional debt issuance, with no end in sight, allows investors to demand a higher yield from the government bonds.
If there’s one piece of good news to be found in the bond market, it’s in the market for Treasury Inflation-Protected Securities. The TIPS market offers a window into what investors believe future inflation will look like. Based on TIPS pricing, “investors believe the current inflation spike will be temporary, and inflation increases will slow over time.”
Will Nvidia Have Yet Another Blowout Quarter for Earnings?
Over the past three years, it’s something of a ritual for Nvidia to absolutely crush earnings estimates and forecasts for future business. Will that happen again this Wednesday when the company reports after the closing bell?
As we do each quarter, we checked in with Brian Colello, senior equity analyst at Morningstar, for what he will be watching when Nvidia reports.
Some of his key points:
- Nvidia guided to over $300 billion in revenue in calendar 2026, which is effectively fiscal 2027. We’ll look to the quarterly earnings report to gauge whether Nvidia and its supply chain partners are on track to hit this revenue target.
- In artificial intelligence, we’re seeing high demand for server CPUs. Also, the Cerebras IPO bodes well for low-latency AI-inference semis. Nvidia acquired the technology from Groq to support low-latency inference.
- We anticipate that investors will still seek a beat-and-raise quarter. Nvidia remains on a healthy streak of reporting results that were ahead of its quarterly guidance, while guiding for the upcoming quarter ahead of FactSet consensus estimates
You can find more of Colello’s checklist, along with his over all take on Nvidia, including whether the stock is still a buy, in our earnings preview article.
