Bernstein breaks down AI hardware trade crowding: chips and networking equipment become concentrations of capital; memory stocks show diverging trends.

As the AI infrastructure investment boom continues to heat up, related stocks such as semiconductors, servers, and networking equipment have become market favorites, but investor concerns about overcrowded AI-themed trades are also mounting. Bernstein's latest research report notes that although some AI-related stocks have recently shown signs of capital outflow, overall trade crowding in the U.S. technology hardware, semiconductor, and networking equipment sectors remains relatively high. Among them, stocks such as AMD (AMD.US), Arista Networks (ANET.US), and Applied Materials (AMAT.US) are particularly crowded, while Qualcomm (QCOM.US) and SanDisk (SNDK.US) are at relatively low levels. In its October 25 report, Bernstein said that as investors increasingly recognize AI infrastructure suppliers as direct beneficiaries of the AI development wave, capital has continued to flow into related stocks, driving a marked rise in trade crowding across multiple technology hardware subsectors. According to the firm's quantitative analysis, within the global technology, media, and telecom (TMT) sector, communications equipment is currently the most crowded subsector, followed by semiconductors and electronic equipment. Notably, networking equipment and traditional hardware industries have historically tended not to be favored by investors, yet they have now become areas of highly concentrated market capital, reflecting the profound impact of the AI investment theme on sector capital allocation. However, Bernstein emphasized that although the technology sector is currently the most crowded sector among global industries, its crowding level has not yet reached abnormally extreme levels from a historical perspective. By contrast, the financial and industrial sectors are currently more prominent relative to their own historical levels. Within semiconductors, 7 of the 12 semiconductor and semiconductor equipment stocks covered by Bernstein are in the top 10% most crowded range. Among them, the AI chip segment is the most crowded, mainly involving Broadcom Inc. (AVGO.US), AMD, and NVIDIA Corporation (NVDA.US). The semiconductor equipment segment follows, including companies such as Applied Materials, Lam Research (LRCX.US), KLA (KLAC.US), and PDF Solutions (PDFS.US). At the individual stock level, AMD is one of the most crowded companies among the technology hardware and semiconductor stocks covered by Bernstein, with a standardized crowding score of 2.35. Arista Networks and Lumentum (LITE.US) reached 2.20 and 1.91, respectively, while Coherent (COHR.US) and Applied Materials also had relatively high crowding levels. By contrast, Qualcomm is the most obvious exception in the semiconductor sector. The report noted that for most of the time since the beginning of this year, Qualcomm has been in the least crowded 10% range, briefly changing that status only between April and May when data center business-related news drove its share price higher. In Bernstein's analysis, Qualcomm is not only one of the least crowded semiconductor stocks in its coverage universe, but also at a relatively low level among large global technology hardware and semiconductor companies. There is also clear divergence in the semiconductor equipment space. Bernstein noted that KLA's trade crowding since June has been significantly lower than that of peers such as Applied Materials, Lam Research, and PDF Solutions. The firm believes this is mainly related to KLA's relatively insufficient short-term investment appeal. Due to longer product delivery cycles, KLA's 2026 growth is expected to be slower than some peers, while rising DRAM costs used in its products may pressure gross margins by about 100 basis points. In addition, KLA's exposure to the memory chip supply chain is relatively limited, while its valuation is higher than Applied Materials and Lam Research, prompting some investors to shift to other semiconductor equipment companies. In technology hardware, stocks related to AI servers and storage equipment are also at high trade crowding levels. Bernstein data show that Apple Inc. (AAPL.US), Western Digital Corporation (WDC.US), Seagate Technology Holdings PLC (STX.US), and Dell Technologies, Inc. Class C (DELL.US) are all in the top 10% most crowded range, while HP Inc. (HPQ.US) and Super Micro Computer, Inc. (SMCI.US) are in less crowded ranges. Among them, Apple Inc. is one of the most persistently crowded stocks in Bernstein's coverage. Since early 2024, the stock has almost consistently remained in the top two most crowded ranges. Bernstein noted that although rising memory chip costs have raised market concerns about Apple Inc.'s profitability, its trade crowding has not declined significantly. The firm believes that rising DRAM and NAND costs could pose downside risks to Apple Inc.'s December-quarter gross margin and earnings per share. If upcoming results fall short of expectations, highly concentrated investor positioning could amplify short-term stock price volatility. However, Bernstein still maintains an "Outperform" rating on Apple Inc., believing that Apple Inc. is well positioned to become an important gateway for consumers to use AI services without bearing the massive AI capital expenditures faced by some large cloud computing and software companies. In the storage industry, Western Digital Corporation has been in the top 10% most crowded range since June 2025 and is one of the stocks in Bernstein's coverage that has maintained a highly crowded status for the longest consecutive period. Seagate Technology Holdings PLC's trade crowding also rose markedly in the second half of this year. As market recognition of the hard disk drive (HDD) investment thesis increased, the stock has remained in the most crowded range since July. Nevertheless, Bernstein still lists Seagate as one of its top picks and maintains an "Outperform" rating. The firm noted that Seagate's nearline HDD capacity for calendar year 2026 is already sold out, and most related capacity through 2028 has been committed under orders. In addition, Seagate's leading advantage in heat-assisted magnetic recording (HAMR) technology is also an important reason Bernstein is optimistic about its earnings outlook. The firm expects that by 2027, HAMR products will account for about 70% of Seagate's nearline HDD shipment capacity, while Western Digital Corporation's corresponding share is expected to be only about 5%. In sharp contrast to these popular storage stocks is SanDisk. Bernstein noted that although SanDisk is a direct beneficiary of the NAND flash industry upcycle and its share price has risen sharply this year, its trade crowding is at a low level. The firm believes this may reflect the market's underestimation of SanDisk's profitability and the sustainability of the current memory industry boom cycle. Bernstein noted that the market still tends to view SanDisk as a typical cyclical trading vehicle and worries that NAND product average selling price increases may slow. However, SanDisk's new long-term supply agreements with customers are expected to mitigate this risk. According to the report, more than half of SanDisk's memory chip shipments in fiscal 2027 and about two-thirds of shipments in fiscal 2028 have been included in long-term agreements with price floors and ceilings. These agreements involve eight data center and edge computing customers and carry total financial guarantees of US$16.5 billion. Bernstein believes these arrangements help improve the predictability of SanDisk's future revenue and earnings, and together with the company's own operating leverage, its earnings growth potential may not yet be fully reflected by the market. However, the firm also cautioned that because SanDisk has a short trading history since relisting and some crowding indicators require at least two years of historical data, the reliability of current crowding assessments for SanDisk is relatively limited. In networking equipment, 5 of the 7 stocks covered by Bernstein are in the top 10% most crowded range. Among them, companies such as Arista Networks, Lumentum, and Coherent are targets with relatively concentrated capital allocation. Bernstein believes that although these companies are still expected to benefit from growing AI infrastructure demand, their share prices could face greater pullback pressure if a new round of cooling in popular trades occurs. Celestica (CLS.US) shows a different trend. The report noted that although the stock's overall trade crowding remains above the average for the technology hardware and semiconductor industries, it has fallen markedly since this summer and is currently among the relatively less crowded companies in Bernstein's networking equipment coverage. Bernstein believes that with lower market positioning crowding and somewhat reduced valuation multiples, Celestica may have more favorable investment conditions ahead of its upcoming investor day. On investment ratings, Bernstein maintains "Outperform" ratings on companies including AMD, NVIDIA Corporation, Broadcom Inc., Applied Materials, Apple Inc., Western Digital Corporation, Seagate, Dell Technologies, Inc. Class C, and SanDisk, while maintaining "Market-Perform" ratings on companies including Qualcomm, HP Inc., and Super Micro Computer, Inc. Bernstein emphasized that trade crowding does not mean the relevant companies' fundamentals have deteriorated, nor does it necessarily signal an imminent share price decline. But when a large number of investors concentrate on similar AI investment targets, concentrated selling could amplify stock price volatility once market expectations change. The firm believes that as the AI infrastructure investment theme continues to attract capital, investors need to pay more attention to individual stock positioning crowding as an important reference indicator for risk management, staying alert to the potential pullback risk brought by concentrated popular trades while assessing companies' growth potential.