Ed Yardeni Sees AI Chip Rebound, Year-End Stock Rally — Warns Of Midterm Election, Iran War Risks

• Semiconductor stocks trade at about 13.5 times forward earnings, below the S&P 500’s 18.5.
• Analysts expect semiconductor earnings to grow 114.3% in 2026 and 77.9% in 2027, according to Yardeni Research.
• Yardeni suggested holding back cash for buying opportunities after the elections or any further escalation in the Iran war.

Yardeni Research President Ed Yardeni said Monday that the recent artificial intelligence (AI) sell-off was not a full-blown rout but was “taking some air out of the AI bubble,” which he sees as a positive development.

In an interview with CNBC-TV18, the strategist said he expects semiconductor stocks to rebound, adding that AI is a real technology that will become profitable, although identifying which technology companies will benefit most remains difficult.

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Yardeni also expects a year-end rally in U.S. equities but warned that midterm elections and geopolitical uncertainty could create further buying opportunities.

Why Yardeni Expects AI Chip Stocks To Rebound

Yardeni said the recent pullback has reduced valuations even as analysts continue raising earnings expectations for AI-related companies.

The market veteran noted that semiconductor stocks trade at a forward price-to-earnings ratio of about 13.5, below the S&P 500's 18.5, adding that cloud revenue growth and substantial order backlogs support his outlook.

In a research note, he said that analysts expect semiconductor industry earnings to grow 114.3% in 2026 and 77.9% in 2027.  The note also showed that Microsoft (MSFT), Oracle (ORCL), Amazon (AMZN) and Alphabet (GOOG, GOOGL) have combined remaining performance obligations of $2.5 trillion. 

Yardeni Research identified funding and delivering AI infrastructure as the key challenge to monetizing those commitments. The firm also said memory makers were sold out into 2029, giving them pricing power amid strong AI demand.

Yardeni’s comments come after Friday's sell-off saw Intel (INTC) stock plunge 28.6%, SanDisk (SNDK) fall 13.5%, and AMD drop 10.9%. However, the analyst said investors were shifting from AI stocks into health care, financials and industrials rather than leaving U.S. equities.

Midterm Elections, Iran War Pose Near-Term Risks

Turning to Tuesday's midterm elections, Yardeni warned that the U.S. stock market could face further volatility amid the possibility of renewed escalation in the war involving Iran.

He said his firm had advised caution since September 15 and suggested investors consider holding back cash for potential buying opportunities following the elections or any further escalation.

Yardeni also warned that greater political division after the elections could make future debt and government shutdown negotiations more difficult, potentially creating risks heading into 2027.

Despite those concerns, he expects a year-end rally in U.S. stocks, typically referred to as a ‘Santa rally’, between Thanksgiving and the end of December.

US Markets On Track For Positive Open

U.S. stock futures rose early Monday after a losing week on Wall Street, as investors looked ahead to earnings, jobs data and the midterm elections. 

S&P 500 futures gained 0.5%, Nasdaq 100 futures climbed 0.80%, and Dow futures advanced 271 points, or 0.52%, following a week of selling in technology stocks amid concerns over artificial intelligence spending.

On Stocktwits, retail investors’ sentiment around the SPDR S&P 500 ETF (SPY), which tracks the S&P 500, fell to ‘neutral’ from ‘bullish’ a day ago. Sentiment toward the Invesco QQQ Trust (QQQ), which tracks the Nasdaq 100, and the SPDR Dow Jones Industrial Average ETF Trust (DIA) remained ‘bearish’.

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