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I’ve been watching the semiconductor sector absolutely rip higher, and while the momentum is undeniable, there’s something beneath the surface that’s starting to catch my attention.
Let me start with what’s working…
Arm Holdings (ARM) is up about 140% since the February lows. Advanced Micro Devices (AMD) has ripped 80% higher in just the last month. And if you want to talk about explosive moves, Intel (INTC) went from $20 to $110 — that’s more than a 5X return.
This isn’t happening in isolation. The broader market is still rewarding companies that deliver strong earnings, and it’s not punishing weak results nearly as aggressively.
That tells me there’s a real appetite for risk out there — a healthy amount of hunger that continues to push money into leaders, especially the physical backbone of the AI boom. Right now, semiconductors, energy, utilities and the overall computing power trade are where the market wants to be.
Until we see a major turn in semiconductors, this market’s going to continue pushing higher. The momentum is absolutely loving this theme right now and it’s largely ignoring everything else. These stocks are just unbelievable and the market keeps rewarding them.
But here’s where it gets interesting — and a little concerning.
The Free Cash Flow Problem Nobody’s Talking About
While revenue growth, earnings expectations and demand are all pointing up, free cash flow is depleting aggressively across all the hyperscalers. Everybody’s spending so much money that free cash flow looks like it’s heading down even while everything else points up.
This kind of behavior isn’t new. We’ve seen massive investment cycles like this before — the fiber buildout during the dot-com era, the railroad expansions in earlier market cycles.
Those CapEx waves tend to follow a familiar path. Heavy spending fuels huge growth stories, market enthusiasm peaks and eventually the bill comes due. But we’re not in that final phase yet.
We’re still in the part of the cycle where investment looks justified and the market is more than happy to fund it.
Does this matter right now? Probably not. The market doesn’t care about it today and that’s obvious from how these stocks are trading. But it does remind me of something important…
This is going to be the same justification we saw during the dot-com bubble — the belief that massive infrastructure spending would be endlessly rewarded. Those cycles do end, but they don’t end quickly and they certainly don’t end while momentum is still this strong.
Everyone calling this a bubble might be right, but they might also be early by a year, two, three or even five. And it’s worth remembering what a bubble actually looks like. If something goes up and then collapses 80%, that’s a bubble.
If it goes up and retraces 20%, that’s just a correction. We’re not seeing the kind of sentiment blowoff that signals a true top. In fact, sentiment still isn’t euphoric. We’re back in greed territory but not overbought. People are using the word “bubble” way too freely, and in my experience, that usually means we’re not there yet.
How I’m Positioning Around This
I’m not trying to fight this rally. The semiconductors are on fire and the market is making that abundantly clear. And with this cycle driven by the physical side of AI — the chips, the power, the infrastructure — I’d rather be aligned with the picks and shovels than trying to guess which software names eventually dominate.
At the same time, this is a place where experience matters. I’ve seen enough of these cycles to know that while you don’t stand in front of a freight train, you also don’t ignore signs that the tracks might eventually get shaky.
To balance the upside with some intelligent protection, I’m leaning into structures like broken wing butterflies and put ratio backspreads.
In simple terms, these let me participate in further upside while defining my risk on the downside. A broken wing butterfly can generate a safe credit up front and create a profit zone if price pulls back into a targeted area. A put ratio backspread can give me cheap or even no-cost downside exposure if the market finally decides it’s time to unwind.
I want to stay aligned with the strength while building a cushion for whenever the tide eventually shifts. Because while the momentum is undeniable today, that free cash flow trend is something I’ll be watching closely as this plays out.
The rally might have room to run, but I want to be positioned intelligently for whatever comes next.
I’ll see you in the markets.
Chris Pulver
Chris Pulver TradingÂ
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