Fish Where the Fish Are — Finding Investment Opportunities in the Hottest Sectors

Ind Group Rank: A Sector's Relative Performance Ranking Based on Stage Returns — The Most Objective Gauge of What the Market Is Trading Now. Fast-Rising Sectors Also Deserve Close Attention.

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Elec-Semicondctor Fablss Rises 33 Ranks(From 45 to 12):

Elec‑Semiconductor Fabless

Core Logic & Market Space
AI data center capex is forecast to grow at least 80% YoY in 2026 and 50%+ in 2027, directly driving structural demand for accelerated compute, custom ASICs, and networking chips. The semiconductor industry is expected to grow 28% YoY in 2026, and fabless companies, as the core designers of AI chips, are among the biggest beneficiaries of cloud infrastructure investment. Custom chip penetration in AI inference/training continues to rise, and networking chips are driven by data center interconnect and bandwidth upgrades, creating a long-term growth runway for the fabless sector.

Market Dynamics
Institutions continue to favor companies with strong exposure to strategic infrastructure, particularly in accelerated compute/AI, custom chips, and networking (AVGO, NVDA, MRVL). Capital rotation between AI hardware and software chains is underway; fabless leaders maintain high attention due to their deep ties to the AI theme, but valuation divergence has increased after significant prior rallies. Institutions note that stock selection is more challenging than before, but still see an extended earnings revision cycle driven by AI.

Stock Views (US Stocks)

• NVIDIA Corporation(NVDA.US) : Morgan Stanley maintains its top pick in the semiconductor sector, viewing NVIDIA as balancing growth and value, with a broader investor base helping close the valuation gap and a clear long-term growth narrative.
• Broadcom Limited(AVGO.US) : J.P. Morgan lists AVGO as a preferred name, benefiting from custom ASIC and networking demand. Its expanded partnership with Apple provides additional support.
• Marvell Technology(MRVL.US) : J.P. Morgan prefers MRVL, benefiting from networking chips and custom ASIC demand, with clear exposure to data infrastructure.
• Advanced Micro Devices, Inc.(AMD.US) : Rated Neutral (N) by the covering institution; the documents do not provide positive driving logic. The market watches its GPU share gains and CPU business, but near-term competition and inventory overhang are noted.
• QUALCOMM Incorporated(QCOM.US) : Retail fund inflows indicate positive sentiment, with long-term Apple partnership providing stability.

Risk Factors

1. A slowdown in AI capex or a shift toward in-house chip development could reduce external design demand.
2. Persistent tightness in advanced-node wafer capacity limits fabless shipment flexibility.
3. Geopolitical risks impact supply chains and customer relationships.
4. Elevated valuations for some names expose them to rotation-driven corrections.

Top 5 Fastest-Rising Sectors

Top 5 Hottest Sectors

Computer‑Networking

Core Logic & Market Space:
As AI clusters scale from tens of thousands of GPUs to millions of XPUs, networking has evolved from a mere connectivity layer into the primary bottleneck determining compute efficiency. Cloud hyperscalers are simultaneously upgrading data center networks, driving a surge in demand for high‑performance Ethernet switching, optical interconnects (800G/1.6T transition), DSPs, and XPU‑attach silicon. The rise of open standards like Ultra Ethernet further expands the Ethernet TAM in AI clusters. Broadcom, for example, expects its AI networking revenue to more than triple this year and double again to over $45B next year, underscoring that networking is among the highest‑elasticity segments in the entire AI infrastructure chain.

Market Dynamics:
The optical networking sector was heavily shorted on a “Chinese InP oversupply” narrative, but institutions such as Rosenblatt and Mizuho strongly refute this, pointing out that Chinese players lack critical mass‑production capabilities like 200G EML, making the real impact limited. They view the pre‑earnings window in July as an attractive contrarian long opportunity for optical names. Investors are currently trading around catalysts ahead of 2027, where they broadly expect to significantly increase positioning. Capital is flowing broadly into copper interconnects, Ethernet switches, pluggable optics, InP lasers, and test equipment across the AI networking supply chain.

Stock Views (US Stocks):

• Arista Networks Inc(ANET.US) : Viewed by the market as the purest AI networking infrastructure play. Explosive AI Ethernet demand is its core growth driver, with network switches considered a direct bottleneck to GPU cluster expansion.
• Broadcom Limited(AVGO.US) : J.P. Morgan maintains Overweight. The Tomahawk 6 switching platform is effectively sold out. The company holds approximately a 70% share in hyperscale cloud switching/routing silicon, putting its AI networking business on an exponential growth curve.
• Marvell Technology(MRVL.US) : J.P. Morgan preferred name. Dual‑driven by networking silicon (Teralynx) and custom ASICs (Trainium, Maia), with deep involvement in the Ultra Ethernet ecosystem. AI custom revenue is expected to double to over $4B by CY27.
• Lumentum Holdings, Inc.(LITE.US) : Identified by Rosenblatt as one of the best long opportunities in the optical space before the July earnings season. Strong in coherent lasers and EML/CW components, providing indirect but deep exposure to the AI DCI chain through upstream components.
• Ciena Corporation(CIEN.US) : Its addressable market is expected to double in three years. The WaveLogic 6 series, targeting DCI and campus interconnect with coherent pluggable solutions, sits at the center of the DCI demand boom.
• Coherent Corp.(COHR.US) : Communications revenue grew 55% YoY. It launched a 1.6T 2D VCSEL array advancing the NPO/CPO roadmap. Its InP laser and module capacity remains tight, pulled by DCI and future CPO demand.
• Credo Technology(CRDO.US) : The rise in XPU counts in AI clusters drives demand for high‑speed interconnects (SerDes/AEC/Retimer), alongside a silicon photonics roadmap. While per‑XPU connectivity value faces compression, total shipment volume growth is the key validation metric.

Risk Factors:

1. Mass production of CPO/NPO is expected around 2029; near‑term expectations may outpace actual progress.
2. Hyperscaler in‑house networking silicon could gradually crowd out third‑party vendors.
3. Delays in the 1.6T upgrade cycle could impact near‑term shipment momentum.
4. Shortages in high‑end PCB materials like T‑glass (gap >60%) constrain overall switch and server delivery.