If 2025 was the year artificial intelligence went mainstream, 2026 is shaping up to be the year the infrastructure behind it becomes a trillion-dollar market. Semiconductor stocks surged to kick off the new trading year, with the VanEck Semiconductor ETF climbing 4% on January 2 to extend a rally that has delivered gains in three consecutive years.

The numbers are striking. Micron Technology jumped 10% on the first trading day. Intel rallied 7%. Dutch chip equipment maker ASML gained 9%. The gains weren't limited to AI darlings—they spread across the semiconductor ecosystem, from memory makers to manufacturing tool providers.

The $1 Trillion Milestone

Bank of America analyst Vivek Arya has issued a bold forecast: global semiconductor sales will cross $1 trillion in annual revenue for the first time in 2026. That would represent a 30% increase from 2025 levels and mark a historic milestone for an industry that barely topped $400 billion a decade ago.

The growth is concentrated but not exclusive to AI applications:

  • Data center chips: Nvidia, Broadcom, and AMD are capturing the bulk of spending on AI accelerators, with demand from cloud hyperscalers showing no signs of slowing.
  • Memory: High-bandwidth memory (HBM) used in AI systems is in chronic shortage, driving pricing power for Micron, Samsung, and SK Hynix.
  • Manufacturing equipment: Companies like ASML, Applied Materials, and Lam Research benefit as foundries expand capacity to meet AI demand.
  • Automotive and industrial: While not as explosive as AI, steady demand from electric vehicles and factory automation provides a growth floor.

"We're at the midpoint of a decade-long transformation," Arya wrote in his 2026 outlook. "The artificial intelligence boom isn't cooling off—it's just beginning to scale."

Why Micron Led the Rally

Micron's 10% surge on the first trading day deserves particular attention. The memory specialist has emerged as a primary beneficiary of the AI buildout, and its recent performance validates the thesis.

Bernstein analyst Mark Li upgraded Micron ahead of the new year, raising his price target by 20%. His reasoning centers on the company's leadership in HBM4, the next generation of high-bandwidth memory that will power the most advanced AI systems.

Key points from Li's analysis:

  • Pricing power: Memory prices are rising rather than falling, a reversal of the industry's historical pattern driven by chronic undersupply of AI-grade chips.
  • Margin expansion: Higher prices and improved manufacturing efficiency are boosting profitability faster than revenue growth.
  • Customer concentration: While Nvidia represents a significant portion of HBM demand, that concentration provides visibility and predictability.

Micron gained more than 240% in 2025, yet analysts argue there's still upside as AI adoption accelerates.

Intel's Unexpected Renaissance

Intel's 7% gain may have surprised those who've watched the company struggle against AMD and Nvidia in recent years. But beneath the surface, Intel is executing a strategic pivot that's beginning to show results.

The company's 18A manufacturing process reached volume production in late 2025, giving Intel cutting-edge fabrication capabilities for the first time in years. More importantly, Intel Foundry Services is increasingly viewed as a viable alternative for companies seeking to reduce dependence on Taiwan's TSMC.

Recent developments supporting the bull case:

  • Nvidia partnership: Reports suggest Nvidia is considering Intel as a secondary foundry partner, which would validate Intel's manufacturing comeback.
  • Government support: The CHIPS Act continues to funnel billions toward domestic semiconductor manufacturing, with Intel as a primary beneficiary.
  • Valuation: After years of underperformance, Intel trades at a significant discount to peers, offering catch-up potential if execution continues.

AMD's Quiet Momentum

AMD rose nearly 4% on the first trading day, a solid if less dramatic gain than some peers. But AMD's story is one of steady share gains rather than explosive moves.

The company's Instinct MI300 series has established AMD as the clear number-two player in AI accelerators. While Nvidia dominates the top tier of cloud providers, AMD has captured significant business from the "tier-two" market—enterprises and smaller cloud operators seeking alternatives to Nvidia's premium-priced chips.

Tonight's CES keynote from AMD CEO Lisa Su is expected to reveal the next phase of this strategy, including details on the MI400 series that will compete more directly with Nvidia's latest offerings.

The Valuation Question

With semiconductor stocks at or near record highs, the obvious question is whether valuations can be sustained. The sector isn't cheap—Nvidia trades at over 40 times forward earnings, and even "value" plays like Micron carry premiums versus historical levels.

Bulls argue that the AI revolution justifies elevated multiples. If the industry is genuinely at the midpoint of a decade-long transformation, current earnings dramatically understate future potential. Companies capturing share in a trillion-dollar market can grow into seemingly expensive valuations.

Bears counter that any stumble in AI demand could trigger significant multiple compression. The sector's gains have been concentrated in a handful of names, creating vulnerability if sentiment shifts. Michael Burry of "Big Short" fame has disclosed short positions in Nvidia and Palantir, betting that AI enthusiasm has run ahead of fundamentals.

What to Watch at CES

This week's CES conference in Las Vegas will provide the next set of catalysts for semiconductor stocks. Key presentations to watch:

  • Nvidia (tonight): Jensen Huang's keynote will set expectations for 2026 AI development. Any details on next-generation products, customer demand, or competitive positioning will move markets.
  • AMD (Monday): Lisa Su's presentation will reveal how AMD plans to narrow Nvidia's lead in AI accelerators while defending its strong position in CPUs and traditional GPUs.
  • Intel: Pat Gelsinger is expected to provide updates on manufacturing progress and customer wins for Intel Foundry Services.

The Bottom Line

Semiconductor stocks are entering 2026 with momentum, optimism, and sky-high expectations. The fundamental case remains compelling—AI adoption is accelerating, supply is constrained, and the industry is approaching a $1 trillion milestone. But the easy gains may be behind us. From here, stock selection matters more than riding the sector wave. Investors should focus on companies with durable competitive advantages, reasonable valuations, and execution track records. The chip rally can continue, but it won't lift all boats equally.