Semis: Leaders Pull Further Ahead
Chart of the Week:
Middle East Risks Fade; Focus Shifts to Tech Earnings
Despite ongoing Middle East volatility, market sensitivity to US-Iran negotiations and geopolitical risks has diminished. After equities declined from March, markets rebounded in April, with focus shifting back to corporate earnings and fundamentals. Even as the geopolitical risk index picked up again in mid-April, US equities continued to reach new highs.
Market Recap 1:
US-Iran Deal Uncertainty Fails to Derail Tech Rally to New Highs
President Trump announced an “indefinite extension” of the ceasefire with Iran until Tehran presents a unified proposal and reaches a final agreement. The US military continues its blockade of the Strait of Hormuz, while Iran demands a full lift of the blockade as a condition for a meaningful ceasefire. Negotiations have neither progressed nor deteriorated, with oil prices holding near USD100/bbl. Geopolitical risks have eased in the near term, lifting risk appetite and shifting focus back to corporate earnings. US and Japanese equities advanced.
Market Recap 2:
Warsh Stresses Policy Independence; Major Central Banks Likely to Stay on Hold
Fed chair nominee Kevin Warsh emphasized maintaining monetary policy independence during his confirmation hearing and signaled a preference for a new framework to assess and respond to inflation. He reiterated support for balance sheet reduction while cautioning against excessive market volatility. His nomination has yet to be scheduled by Congress, raising the possibility he may not take office before May 15 and leaving lingering concerns over central bank independence. US Treasury yields rose amid elevated oil prices and inflation concerns, pressuring bond markets.
What’s Trending:
Short-Term US Inflation Rises, but Equity Wealth Effect Supports Consumption
March retail sales rose 1.7% MoM, the strongest since Mar 2025 and above the 1.4% consensus, driven by a 15.5% surge in gasoline station sales amid soaring fuel prices following the US-Iran conflict. Excluding gasoline, retail sales grew 0.6% MoM, indicating steady consumption. The pass-through from higher oil prices to goods is expected to emerge gradually in 2Q. However, amid Middle East tensions and oil price uncertainty, most firms are adopting a cautious stance—freezing hiring and relying on temporary labor—limiting upside in housing- and wage-driven core services inflation. As a result, major central banks across the US, Europe, and Japan are maintaining a wait-and-see policy stance.
In Focus 1:
Cloud Capex Surge in Compute Demand Supports Long-Term Semiconductor Growth
Major cloud service providers (CSPs) are ramping up capex to support AI data center buildouts. Amazon, Meta, Google, and Microsoft are expected to spend a combined USD630bn next year. The increased investment will primarily go toward AI servers, high-performance chips, and advanced semiconductor manufacturing demand. TSMC has also raised capex guidance (from USD52–56bn in January to the high end of the range near USD56bn in April), signaling additional advanced capacity coming online and supporting sustained long-term growth in AI chips.
In Focus 2:
AI Chip Market Set for Sustained High Growth; Valuations Elevated but Supported
According to UK research firm Technavio, the global AI chip market is projected to grow from USD78.75bn in 2025 to USD233.68bn by 2030, an increase of USD154.93bn, implying a CAGR of 24.3%. North America is expected to remain the dominant market, with growth of 41.7% over 2025–2030. The proliferation of big data and demand for advanced data processing are key drivers. By end-user, media and advertising accounted for the largest revenue share in 2024.
