(Bloomberg) -- Intel Corp. shares fell more than 4 percent after a UBS analyst warned that the semiconductor sector’s artificial intelligence rally is creating a bubble, prompting investors to take profits on Friday.
“Markets are assuming that the lifecycle of AI firms is different to all other companies historically and that they are immune to normal competitive dynamics,” Michel Lerner, UBS head of HOLT, wrote in a note. The warning highlights growing risks that the market is “running too hot on the AI story.”
The premarket drop saw Intel (INTC) fall 4.1% to $111.27. Other major chipmakers also declined, with Advanced Micro Devices Inc. (AMD) down 3.4% and Arm Holdings Plc (ARM) losing 4.4%. While UBS did not issue a formal rating or price target change, the note questioned the sustainability of current valuations.
The sell-off casts a shadow on the sector’s massive run-up, which has been fueled by excitement over AI. The Philadelphia Semiconductor Index has surged 70.5 percent this year, according to a New York Times report. Intel itself has been a standout performer, with its stock rising more than fivefold in the past year and up 214.6 percent in 2026 alone, far outpacing even Nvidia Corp.
The core of the UBS warning centers on cash flow return on investment, or CFROI. According to Lerner, AI semiconductor stocks are on track for an average 30% CFROI this year. However, the bank’s research shows that historically, only one in five companies that reach such a level can maintain it a decade later.
The caution from UBS echoes bearish sentiment from other corners of the market. Famed contrarian investor Michael Burry, known from "The Big Short," has established bearish put options against the semiconductor sector, according to a 24/7 Wall St. report. While Burry’s timing has been early on past calls, his position adds a significant voice to the debate over whether the AI boom has inflated stock prices beyond fundamental value.
This pullback forces investors who have seen gains of over 100% in some AI-related names to decide between securing profits or continuing to ride the rally. While the long-term potential of AI is not in dispute, the valuations for the companies building its foundation are now under intense scrutiny.
The decline puts the stocks at risk of further technical pullbacks after a period of extreme price appreciation. For Intel, the drop comes after a period of renewed optimism, with analysts recently doubling full-year earnings estimates from $0.507 to $1.086 per share, according to AAII data. Investors will now watch to see if this warning triggers a broader re-evaluation of the entire AI trade.
This article is for informational purposes only and does not constitute investment advice.
