Sector Performance Driven by Memory Boom and AI Infrastructure Demand
The semiconductor sector continues to demonstrate robust growth momentum, with the Semiconductor ETF surging 39.9% over the past three months, significantly outperforming the S&P 500’s 11.4% gain. Memory companies have emerged as the standout performers, posting exceptional gains of 95% driven by extraordinary first-quarter 2026 earnings growth exceeding 900% year-on-year. This remarkable performance stems from a substantial surge in DRAM and NAND prices amid widespread memory chip shortages.
Extended Supply Contracts Signal Long-Term Industry Stability
A notable shift in industry dynamics has emerged through the establishment of longer-term supply agreements. Hyperscalers and high-end chipmakers are now committing to multi-year contracts extending until 2030, representing a significant departure from previous agreements that typically lasted only one year with flexible financing terms. These new arrangements require approximately 20% cash deposits to secure supply, demonstrating the critical importance of memory chips in AI data centre buildouts. Equipment manufacturers report that these extended memory contracts provide enhanced supply chain visibility extending through the end of 2027.
Processor Segment Shows Accelerating Growth Trajectory
The processor segment continues its growth acceleration, with first-quarter 2026 revenue surging 53% year-on-year, up from 40% growth in the fourth quarter of 2025. This momentum is expected to continue, with second-quarter 2026 revenue guidance indicating a substantial 67% year-on-year increase to US$159 billion. The growth is underpinned by robust hyperscaler demand for data centre GPUs, CPUs, and ASICs.
NVIDIA leads the sector with first-quarter revenue spiking 85% year-on-year to US$81.6 billion, marking the third consecutive quarter of accelerating growth. AMD demonstrated its strongest year-on-year growth since 2022, with revenue increasing 38% to US$10.3 billion, driven by MI350 GPU and fifth-generation EPYC CPU adoption. Broadcom achieved its strongest growth since 2016, with revenue rising 48% year-on-year to US$22.2 billion, supported by AI semiconductor revenue that grew 143% year-on-year to a record US$10.8 billion.
The sector maintains strong forward momentum, supported by hyperscalers’ combined 2026 capital expenditure guidance of US$710 billion, representing an 89% year-on-year increase. Equipment players continue to benefit from strong services demand as memory customers seek performance upgrades on existing tools due to limited cleanroom space.
Frequently Asked Questions
Q: What drove the exceptional performance of memory companies in the semiconductor sector?
A: Memory companies achieved remarkable gains of 95% due to first-quarter 2026 earnings growth exceeding 900% year-on-year, primarily driven by a surge in DRAM and NAND prices resulting from memory chip shortages.
Q: How have supply contracts changed in the semiconductor industry?
A: Hyperscalers and high-end chipmakers are now signing longer-term multi-year supply contracts lasting until 2030, requiring approximately 20% cash deposits. This represents a significant change from previous agreements that lasted only about one year with looser financing terms.
Q: Which processor companies showed the strongest growth performance?
A: NVIDIA led with 85% year-on-year revenue growth to US$81.6 billion, followed by Broadcom with 48% growth to US$22.2 billion, and AMD with 38% growth to US$10.3 billion, marking AMD's largest year-on-year growth since 2022.
Q: What is driving the acceleration in processor segment revenue?
A: The acceleration is driven by strong demand from hyperscalers for data centre GPUs, CPUs, and ASICs, supported by hyperscalers' guidance for combined 2026 capital expenditure to surge 89% year-on-year to US$710 billion.
Q: How are equipment companies benefiting from current market conditions?
A: Equipment players are experiencing strong services demand as memory customers seek performance upgrades on existing tools due to limited cleanroom space,. Extended memory contracts providing supply chain visibility through the end of 2027.
Q: What is the outlook for second-quarter 2026 processor revenue?
A: Processor revenue for second-quarter 2026 is guided to surge 67% year-on-year to US$159 billion, with all processor companies except Qualcomm providing guidance for accelerated growth.
Q: Which company faced challenges in the processor segment?
A: Qualcomm experienced difficulties with revenue declining 3.5% year-on-year to US$10.6 billion, weighed down by rising memory prices that reduced inventory demand from Chinese OEM customers. A further decline of 7% year-on-year guided for second-quarter 2026.
This article has been auto-generated using PhillipGPT. It is based on a report by a Phillip Securities Research analyst.
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