Alexander Campbell
· Campbell Ramble
· May 20, 2026 at 05:35
· ⏱ 16 min read
| Read on Substack ↗
Summary
Rising interest rates pose a severe risk to semiconductor stocks because 75% of their value comes from cash flows more than a decade out, making them effectively long-duration assets with 20-year equity duration. Even if AI earnings materialize, the denominator effect from higher discount rates can cause sharp repricing, especially given current multiples of 35x earnings and 11x sales. The author recommends avoiding unhedged long-duration equity exposure and favors low-duration sectors like energy and materials.
•Bob Prince's phrase 'There are bonds in the stocks' applies to semiconductors, where 75% of value depends on cash flows beyond 10 years.
•Semiconductor stocks trade at 11x sales vs. a historical average of 3.5x, implying extreme growth premium that is pure duration.
•A 50bp rate selloff can force a multiple derating from 35x to 28x (20% downside), while a 50bp rally only gives ~10% upside, creating negative asymmetry.
•The scarcity argument (watts, wafers, capex) is inflationary, which raises the discount rate and undermines the very earnings story it supports.
•TSMC issuing bonds to build fabs competes for the same capital as its own equity, pushing long rates higher and discounting its future earnings.
•Low-duration sectors like energy (5-year duration) and materials (5-year) attract capital away from long-duration semis when rates rise.
•Between earnings seasons, rates move daily while earnings update only four times a year; a 50bp rate move erodes ~10% of price for 20-year duration assets before the next earnings print.
•The 2000 internet bust is cited as precedent: real cash flows arrived but at multiples that couldn't withstand higher cost of capital.
Read time16 min
Length16,859 chars
Categoryfinance
Trade Ideas
Alexander CampbellFounder & CEO, Rose AI; ex-macro investor, Bridgewater
Materials sector is also cited as low-duration (5 years) and a beneficiary of inflationary capex cycles. Author mentions materials alongside energy as having 'super powers of diversification in inflat
Materials sector is also cited as low-duration (5 years) and a beneficiary of inflationary capex cycles. Author mentions materials alongside energy as having 'super powers of diversification in inflationary times'.
Risk: Materials are cyclical and could be hit by a global demand slowdown; the thesis depends on sustained capex and inflation.
Alexander CampbellFounder & CEO, Rose AI; ex-macro investor, Bridgewater
Article identifies energy as having only 5 years of duration and notes it benefits from the capex boom without the rate sensitivity. Author explicitly says 'I like the US energy exporters' and that lo
Article identifies energy as having only 5 years of duration and notes it benefits from the capex boom without the rate sensitivity. Author explicitly says 'I like the US energy exporters' and that low-duration sectors become the competition for capital. XLE is the primary energy sector ETF.
Risk: If rates fall sharply or a peace deal boosts risk appetite, energy could underperform growth sectors; also commodity price dependency.
Alexander CampbellFounder & CEO, Rose AI; ex-macro investor, Bridgewater
Author is short long-duration Treasuries via put spreads, betting that rising rates will continue to pressure bond prices, which in turn threatens high-duration equity sectors like semiconductors.
Alexander CampbellFounder & CEO, Rose AI; ex-macro investor, Bridgewater
The article argues that semiconductor stocks have equity duration of ~20 years and are extremely vulnerable to rising rates; SMH is the primary ETF tracking U.S. semiconductors and would bear the brun
The article argues that semiconductor stocks have equity duration of ~20 years and are extremely vulnerable to rising rates; SMH is the primary ETF tracking U.S. semiconductors and would bear the brunt of such a repricing. Author explicitly says 'Not trying to short SMH directly, not yet' but acknowledges the risk.
Risk: If rates continue to rise, SMH could see significant multiple compression; however, the scarcity thesis (real earnings growth) could offset some downside.
This newsletter, published May 20, 2026,
features Alexander Campbell
discussing XLB, XLE, TLT, SMH.
4 trade ideas extracted by AI with direction and confidence scoring.