July 16, 2026
By Peter Bower
In the beginning, good demand drives prices higher. Then capital gets deployed to serve that demand and capture good profits. It may take some time to deliver higher production. In the meantime, prices and margins stay elevated. More capital gets applied in hopes of capturing good profits. Next, the increased capacity comes online, and more and more goods begin to be available, and prices level off and then begin to decline. Finally, too much additional capacity floods the market, and price declines accelerate. The last capital deployed makes no return or even shows losses.
Welcome to the world of semiconductors. This product is in the high price phase, which is attracting additional capital to meet the terrific demand. It may take a while for additional capacity to come online. However, it will. Then prices and margins decline, and returns on the most recently deployed capital collapse. This has happened before, and it will happen again.
The challenge for investors is not to overstay the cycle. Markets will sense that the trend will soon enter a downturn, and the stock prices for the companies that have been benefiting will plummet. Being late gets punished. This is hard because no one rings a bell at the inflection point. The Lonely Bull and his partner are watching this carefully. Some adjustments will soon need to be made. In the meantime, stay steady my friends.
-The Lonely Bull
