Nvidia mostly sat out the chip sector's best quarter ever. What needs to change?

Here is a story making headlines in the economy: Semiconductor stocks are about to complete their best quarter ever. And yet, the biggest chipmaker of them all — Nvidia — has largely sat out the rally. To reignite its stock, Jim Cramer said Nvidia needs to open its checkbook and return more cash to investors.

The Philadelphia Semiconductor Index , known as the SOX, has soared more than 80% in the second quarter, as demand for artificial intelligence computing strengthened and broadened. The SOX leaderboard for the quarter is dotted with blistering gains: Micron is up 239% through Monday's close, fueled by soaring prices for memory and storage chips thanks to a major supply crunch. Lam Research , which makes essential equipment used in the semiconductor manufacturing process, is up 92%.

Economic Details

Club name Intel has nearly tripled, and Advanced Micro Devices has ripped more than 165%. Both companies are longtime makers of central processing units (CPUs) for data centers. The first wave of the AI compute boom was driven by accelerator chips, most notably Nvidia's graphics processing units (GPUs).

The second quarter, however, marked Wall Street's full recognition that an emerging type of AI computing — agentic systems capable of completing tasks autonomously — requires a ton of CPU power to go along with the GPUs. This also helped a fellow Club name, Arm Holdings , which is pushing deeper into the CPU market, climb by over 125% during that period. Even Texas Instruments , long considered a boring bet on industrial markets, got in on the action; it's up some 47% thanks to accelerating growth for power management chips used in data centers.

Then there's Nvidia, whose cutting-edge GPUs kickstarted this AI boom and turned it into the world's most valuable company. It is the worst-performing stock in the entire SOX in the April-to-June period, with a gain of roughly 12%. The stock's frustrating performance relative to its chip peers dates back to last year, but the second-quarter weakness hammers the point home.

Analyst Views

This has been a stretch in which investors seemingly wanted only to buy semiconductor stocks, yet Nvidia has been unable to regain the momentum of yesteryear. SOX NVDA 1Y mountain The Philadelphia Semiconductor Index versus Nvidia's stock over the past 12 months. The problem cannot be explained by looking at Nvidia's reported results.

In its May 20 earnings report, the annual growth rate of its data center business actually accelerated. The segment's revenue surged 92% in the April quarter to $75. 2 billion, up from 75% growth to $62.

3 billion in the February quarter. Plus, its guidance for the May-to-July period was comfortably above Wall Street estimates. What's ailing the stock is a combination of factors — some related to market dynamics and others to hard-to-quell concerns about rising competition.

Economists are analysing what the news means for the markets.