Semiconductor stock valuations have declined significantly, but low price-to-earnings ratios do not necessarily mean cheap. The combined profits of the world's top ten semiconductor companies rose from approximately $75 billion in 2023 to $169 billion in 2024, and are projected to reach $289 billion in 2025, representing a year-on-year increase of approximately 71%, nearly 2.9 times the original amount in two years. Meanwhile, Yardeni data shows that as of November 6th, the forward price-to-earnings ratio of the S&P 500 semiconductor sector index fell to 13.1 times, lower than the S&P 500 index's 18.7 times. The semiconductor industry exhibits a clear cyclical pattern; historically, profit peaks in 2000, 2018, and 2021 were followed by declines. When profits are at a cyclical high, the price-to-earnings ratio appears cheap due to the inflated profit denominator; once profits return to normal, the current low valuation may quickly disappear.
