UBS warns of declining cash flow returns for chipmakers as hyperscalers shift to asset-heavy models, pressuring valuations.
Semiconductor stocks retreated on May 15, with Nvidia (NVDA) falling 4.42% to $225.32 amid broader sector declines. UBS analysts highlighted that 8 of the 12 largest chip companies are now “extremely crowded long,” raising concerns about sustainability.
The sector had surged since March 30, with Intel leading gains at 164.06%, followed by Micron (125.18%) and AMD (116.33%). Nvidia lagged with a 36.41% rise. UBS projects Nvidia’s cash flow return on investment (CFROI) will hit 82% this year, a level reached by only 0.09% of global stocks.
Analysts attribute the pullback to hyperscalers pivoting from asset-light strategies, which could reduce CFROI over the next three years. The warning precedes Nvidia’s earnings report, adding pressure to the sector.