Key Points
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Microchip Technology CEO Steve Sanghi told analysts Thursday that “data center is in the bubble,” hours after a sharp sell-off in AI stocks.
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He argued his own company would hold up better if data-center spending cools, because data centers make up only about a sixth of its sales.
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Companies that depend most on data centers, like Nvidia and the firms that build and wire them, carry the most risk.
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Plenty of investors have wondered whether the artificial intelligence boom has gone too far. On Thursday, the head of a $35 billion chipmaker effectively said so directly.
“I have been saying it, that data center is in the bubble,” Steve Sanghi, president and CEO of Microchip Technology (NASDAQ:MCHP), said on the company’s earnings call Thursday evening, according to a recording of the call.
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The timing was hard to miss. Earlier that day, the Invesco QQQ Trust (NASDAQ:QQQ), which tracks the Nasdaq 100, fell 6.5%, and the VanEck Semiconductor ETF (NASDAQ:SMH) dropped 11.2%. Microchip itself tumbled 13.9% during the session, before it reported results after the closing bell. (Shares are up less than 1% in pre-market trading on Friday.)
Image source: Getty Images.
What He Actually Said
Sanghi’s warning came in response to an analyst’s question about whether an AI slowdown could spill over into Microchip’s other markets, such as industrial and aerospace customers.
His answer was simply no. He said data centers account for 16.7% of Microchip’s business, and he argued that much of the “upside and bubble is not in our numbers. It is in everybody else’s numbers.” If data-center spending were to correct, he said, Microchip “should outperform” companies that sell mostly into that market.
He also pointed to a newer risk: politics, which is what had much of the market reeling post-midterm elections. He said Microchip can’t always tell whether its customers’ chips are headed into an existing data center “or are they shipping in a data center in Ohio that the local governor is going to put on hold?”
Which Stocks Are Most Exposed
If Sanghi is right, the companies with the most to lose are the ones whose growth depends almost entirely on data-center construction. For example, equipment and construction companies sell into new projects, so a pause in building hits them first and hardest, but others are also exposed.
Several firms have already been hit hard. From Tuesday’s close through Thursday’s:
- Nvidia (NASDAQ:NVDA) fell 12%. Data centers brought in $89 billion of its $96.2 billion in revenue during the second quarter, or about 92%, according to its most recent quarterly filing. Third-quarter earnings are due later this month.
- Vertiv (NYSE:VRT), which makes the power and cooling equipment inside data centers, fell 25%.
- Comfort Systems USA (NYSE:FIX), a contractor that builds mechanical and electrical systems for these sites, also fell 25%.
- Ciena (NYSE:CIEN), which makes optical-networking gear that moves data between facilities, fell 23%.
- Applied Digital (NASDAQ:APLD), which builds and leases data centers for AI customers, fell 20%.
Microchip’s Own Numbers
Microchip’s results back up the idea that its business is broader, which might be why its drop was slightly more modest, at 17%, relative to the names above. Net sales rose 42.2% from a year earlier to $1.62 billion in the September quarter according to its earnings release, above the top of its guidance. For the December quarter, it expects sales to range from down 3% to up 1% from the prior quarter. That is better than its normal seasonal decline of 3% to 5%, the company said. But either way, its bigger near-term problem seems ot be supply: The company said lead times are lengthening as it works to add capacity.
So, Should Investors Worry?
A CEO calling a bubble doesn’t mean one is about to pop. Nvidia’s sales are still growing quickly, and Sanghi has an obvious reason to say his company is the safer bet. Still, his warning is a good reason to check how much of your portfolio is tied to a single trend.
For most investors, the answer isn’t to dump AI stocks. It’s to avoid owning only the most data-center-dependent names. Companies like Microchip, which sell into many industries, may offer a steadier way to own semiconductor stocks while the debate plays out. If you own the builders and equipment makers, keep those positions small. This week showed how fast they can fall.
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*Stock Advisor returns as of November 6, 2026.
Jonathan Ponciano has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Ciena, Comfort Systems USA, Nvidia, and Vertiv. The Motley Fool has a disclosure policy.
