"The more important signal sits elsewhere. Semiconductor revenue is cyclical. Manufacturing's share of GDP fell from 9.7% in Q4 2024 to 9.4% in Q4 2025, with growth swinging from -2.6% in Q1 2025 to +3.2% in Q3 and back to 0.3% in Q4."
"The backlogs are enormous and contractual. Alphabet reported Google Cloud backlog of over $460 billion, nearly doubling quarter-on-quarter. Microsoft carried commercial remaining performance obligations of $627 billion."
"The margins are already proven. Alphabet runs at a 32.1% operating margin with 35.7% return on equity. Microsoft sits at a 45.6% operating margin."
"Valuations sit well below the chip cohort. Alphabet trades at a P/E of roughly 16, cheaper than the S&P 500, despite Q1 FY26 revenue growth of 21.8%."
NVIDIA's stock is a focal point in investment discussions, but semiconductor revenue is cyclical and declining. Manufacturing's GDP share decreased, while the information sector remained stable. The real economic strength lies in software and cloud services, which have substantial backlogs and proven margins. Companies like Alphabet and Microsoft report significant contractual revenue and high operating margins, indicating a more sustainable economic model compared to chip manufacturers. Valuations for software companies are also lower than those of chip firms, suggesting a more favorable investment landscape in the software sector.
Read at 24/7 Wall St.
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