Semiconductor earnings have tripled but the sector is trading at 14x the next two years' earnings — whether that's a value or a trap depends on whether AI-driven demand is structural or cyclical.

18:41that it feels like a 20% decline. Um, but you know, price is just at the intersection of earnings and valuation. And valuation is, you know, the present value of future cash flows. And it's influenced by the payout, which we discussed earlier. It's interest. influenced by the risk-free rate, the 10-year Treasury yield, and it's influenced by the risk premium, which is the premium that investors want to get

19:05paid for owning risky assets. And so, the markets are efficient and they all sort of make sense of that. Now, that doesn't mean it's easy. Uh, and right now, we have an earnings boom and it's driven a lot by tech and by semiconductors. Semiconductor earnings have tripled over the last year. Um, and their PE is actually at 14 times the next two years of earnings, which is

19:31super low. >> Someone, sorry, sorry to cut you off. Someone in the chat just said, "Aren't tech stocks getting cheaper?" If you look at the tech stocks as a whole, you're right. The Ford PE is dropping. >> Yeah. Yeah. And so, and that's because earnings are exploding higher. Uh, and I think you have a chart with the the internet uh analog from 2000 and uh that that will make that case. But yeah,

19:51here's the S&P. Um but so so one of the questions we need to ask ourselves and it's kind of like a leap of faith which is that semiconductors uh are are the PE is down 30% year-over-year because earnings have tripled. Semiconductors historically are a cyclical sector. And so anyone in the value space will know that, you know, buying a cyclical sector because the PE is low is the ultimate

20:20trap because it just tells you that earnings are high. And if it's cyclical, they're not going to stay high. So we have to assume right now that semiconductors are not cyclical but more structural because the AI boom is structural. And I think that's a fair assumption, but it's definitely assumption that people need to make in order to say, okay, you know, is the PE does it really mean what it what we

20:45think it means? Because it's not like the max 7 is at at a 14 PE, you know, I mean, their their PE is down as well. Uh, but so it's it's a nuance about what is cyclical, what is structural, um, and um and and what is driving the train here for this AI boom. But for me it's still a boom. And again when we show the internet chart you can see that the the