The 9 indicators of a semi-cycle peak.

The semi cycle, properly understood

Semiconductor cycles run roughly 3 to 5 years peak-to-peak. The cycle is driven by the time lag between order placement and capacity arrival: orders surge when end demand exceeds supply, foundries and equipment makers expand, the new capacity arrives 18 to 24 months later, and the resulting oversupply collapses pricing and earnings. The pattern repeats with each generation.

The cycle is unusual in the consistency of its mechanics. Most industries have idiosyncratic shocks; semis have a structural lag built into the supply response. The discipline is to recognize the late-cycle conditions and reduce exposure before the de-rating, not after.

Book-to-bill — the canonical indicator

SEMI's monthly book-to-bill ratio measures bookings against billings for North American equipment makers. Above 1.0 indicates more orders than shipments — net order growth. Above 1.10 is strong; above 1.20 is overheating. The peak is identifiable when the BBR's trailing three-month moving average rolls from rising to falling.

The indicator does not fire as a pinpoint top-tick. It fires as a regime shift. The actual peak in semis equity prices typically follows the BBR rollover by 2 to 6 months, as the de-rating absorbs the gradual realization that the cycle has matured.

Inventory dynamics — where the cycle ends

Customer inventory days are the variable that converts late-cycle conditions into actual order cuts. When hyperscaler inventory days rise above 90, the customers begin de-stocking. The de-stocking shows up as semi-vendor revenue cuts in the next 1 to 2 quarters.

The signal is in customer earnings calls, not vendor calls. Hyperscale capex guidance, OEM inventory levels, and end-market commentary all lead the semi vendor's own results. Reading the customer side reveals the cycle inflection earlier than reading the supplier side.

How to position

When 6+ signals fire, the appropriate response is to reduce semi exposure. Semis are not always overweight in retail portfolios, but for those who own them, the cycle position matters more than the company-specific story. Selling into late cycle and buying back into early cycle (when book-to-bill is rising from below 1.0 and customer inventory is normalizing) has historically produced 8–14 percentage points of annual alpha over a buy-and-hold semi exposure.