People are 'too negative' on chip stocks, CEO says

Key Concepts

• China’s Semiconductor Industry: Rapid development driven by US export restrictions, focusing on domestic chip production.
• IPO & Spin-offs: Shanghai Technologies IPO and Baidu’s semiconductor unit spin-off as key indicators of growth.
• US Chip Stock Valuation: Maintaining a bullish outlook despite Chinese competition, emphasizing valuation as a key factor.
• Regional Banks: Identified as undervalued and poised to benefit from potential Fed rate cuts and declining inflation.
• Application-Specific Semiconductors: Focus on efficiency, particularly for AI applications.
• Net Interest Margins: A key metric for regional bank profitability, positively impacted by rate cuts.

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China’s Semiconductor Market & IPO Activity

The Chinese chip market is experiencing significant activity at the start of 2026. Shanghai Technologies, an AI chip designer, debuted on the Hong Kong Stock Exchange today, raising approximately $700 million through its Initial Public Offering (IPO). The stock closed up 76% on its first day of trading, demonstrating strong investor confidence. Simultaneously, Baidu is surging, up 15%, and is on track for its largest percentage increase since March 2022, driven by plans to spin off its semiconductor unit and list it in Hong Kong. These developments are directly linked to U.S. restrictions on chip exports to China, which are incentivizing domestic alternatives.

Impact on US Semiconductor Stocks – A Bullish Perspective

The question arises whether these developments necessitate a shift away from U.S. semiconductor stocks. Jay Hatfield, CEO of Infrastructure Capital Management (managing $3.2 billion in assets), maintains a bullish outlook on U.S. chip stocks, particularly given recent valuation corrections. He notes that while the news regarding Chinese advancements has spurred a rally, valuations remain attractive.

Hatfield specifically highlights Marvel, trading at 25 times earnings, as a favorable pick due to its focus on application-specific semiconductors – chips designed for specific tasks, offering greater efficiency, particularly in AI applications. He also points to Broadcom, which he describes as having become cheaper and reached their target price, and NVIDIA, which he believes is “quite reasonably priced” despite restrictions in China, citing the substantial opportunity in the rest of the world. He states, “People are too negative on the chip stocks.”

NVIDIA & Chinese Demand

A Reuters report indicates that NVIDIA has received approximately 2 million chip orders from Chinese companies for the H-200, a chip approved for sale in China by the U.S. This suggests continued demand for U.S. chips within China, even with export controls. Hatfield reinforces this point, stating that investors should consider staying invested in U.S. chip stocks, but emphasizes the importance of monitoring valuations. He provides a personal example of buying and selling Broadcom based on valuation fluctuations, advising against overpaying for stocks like Tesla. As he stated, “We sold some Broadcom at 400 and bought it back at 320 so pay attention so you don't get burned by overvalued stock like Tesla for instance.”

Beyond Semiconductors: Regional Banks as an Opportunity

Shifting focus away from the chip sector, Hatfield identifies regional banks as an undervalued opportunity. He believes they are “super bullish” about inflation decreasing to 2.4% in the first quarter, anticipating three rate cuts by the Federal Reserve. This expectation of declining inflation and subsequent rate cuts would benefit regional banks through higher net interest margins – the difference between the interest income generated and the interest paid out. He describes the sector as “super-boring” but predicts strong performance this year. He specifically mentions Citizens Financial, noting its positive performance (up 1.6% at the time of the interview) and strong balance sheet.

Investment Caution & Final Advice

Hatfield concludes with a cautionary note, advising investors to “just don’t be too conservative.” He suggests avoiding overly cautious investment strategies.

Technical Terms:

• IPO (Initial Public Offering): The process of offering shares of a private company to the public for the first time.
• Application-Specific Semiconductors: Chips designed for a specific purpose or application, often offering greater efficiency.
• Net Interest Margin: The difference between the revenue that a bank earns from its lending activities and what it pays out to depositors.
• Valuation: The process of determining the economic worth of an asset or company.
• Spin-off: The creation of an independent company from a division or subsidiary of a parent company.