AI-Fueled Chip Rally Gains Renewed Breath From Middle East Data Center Push

The Trump administration has announced plans to rescind a Biden-era rule that prohibited or capped the sale of advanced semiconductors outside of the US in an effort to keep the technology out of “countries of concern.” The details are expected in the next few weeks.

But before the ink is dry on the new rules, Saudi Arabia ordered billions of dollars of semiconductor chips from Nvidia (NASDAQ:NVDA), AMD (NASDAQ:AMD), and others during President Trump’s trip to the Kingdom this week. More orders are expected as Trump continues on to Doha and Abu Dhabi. AMD signaled its optimism about the future by announcing a $6 billion stock buyback program on Wednesday.

It has all contributed to a furious semiconductor rally that has lifted the S&P 500 Semiconductors industry index by 43.6% since its April low.

Here are some additional details on what’s led to the chip revival:

(1) Lifting the AI Diffusion Rule. The “Diffusion Rule” had been opposed by many technology companies, including Microsoft (NASDAQ:MSFT), Oracle (NYSE:ORCL), and Nvidia, which believed it would limit US tech companies’ opportunities abroad without achieving its goal of impeding China. Eliminating the rule means advanced semis can now be sold into India, Switzerland, Saudi Arabia, Israel, and Singapore, among other countries. The move was expected to benefit chip makers including Nvidia, Intel (NASDAQ:INTC), and AMD.

(2) Chip orders surge. Nvidia announced on Tuesday a “partnership” that will help turn Saudi Arabia into a “global powerhouse in AI, cloud, and enterprise computing, digital twins, and robotics.” The company is working with Humain, a subsidiary of the Saudi’s Public Investment Fund that was launched this week to focus on AI.

Humain will build AI data centers (which Nvidia calls “AI factories”) powered by several hundred thousand of Nvidia’s most advanced chips over the next five years. Nvidia will train thousands of Saudi developers, teaching them the skills to work in accelerated computing and AI. And Aramco Digital will develop AI computing infrastructure using Nvidia platforms.

Humain also announced partnerships with AMD, Amazon’s (NASDAQ:AMZN) AWS, and Groq during President Trump’s visit to Saudi Arabia. It will build additional data centers with AMD in Saudi Arabia and the US, using AMD chips and hardware. AWS announced it would invest $5.3 billion in a partnership with Humain, which will build an AI zone in Saudi Arabia. It will use AWS AI infrastructure and services. This is in addition to another infrastructure region that AWS is building in the country, which will be available next year.

(3) Buybacks abound. AMD’s board of directors authorized a new $6 billion share buyback program in addition to the $4 billion of capacity remaining on an existing program. “Our expanded share repurchase program reflects the Board’s confidence in AMD’s strategic direction, growth prospects, and ability to consistently generate strong free cash flow,” AMD CEO Lisa Su said in a statement on Wednesday.

AMD isn’t alone. In February, ON Semiconductor (NASDAQ:ON) announced a new $3 billion share repurchase program. ASM International started on April 29 a €150 million buyback program that it announced in February. KLA increased its share buyback program by $5 billion, and Broadcom (NASDAQ:AVGO) announced a $10 billion buyback program.

(4) A look at the numbers. It’s not surprising that semiconductor companies are buying back their shares—the S&P 500 Semiconductors industry stock price index fell by 35.1% from its peak in January through April’s low. The index has enjoyed a 43.6% bounce since April, leaving it down only 6.8% from its peak.

The S&P 500 Semiconductors industry index had rallied dramatically in recent years, rising 300% from the start of 2023 to its peak in January. The sharp move left the index’s valuation stretched near 35. At the height of the selloff, Semiconductors’ forward P/E fell to a low of 19.8 on April 3; it has since recovered a bit to 26.0.

Semiconductor stocks may have also come under pressure because the industry’s astronomical revenues and earnings growth has slowed, though continued to improve. The S&P 500 Semiconductors industry posted revenue growth of 30.9% in 2024, but that’s expected to moderate to 26.0% this year and 17.3% in 2026.

Likewise, earnings growth has decelerated from 49.1% in 2024 to an expected 40.6% in 2025 and 26.8% in 2026.

Net earnings estimate revisions for the industry have been negative over the last eight months. That may change given the new orders that many of these players have coming out of the Middle East.

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