Proliferation of AI Should Keep This Semiconductor ETF Elevated

Increased usage of artificial intelligence (AI) has been benefiting the Invesco PHLX Semiconductor ETF (SOXQ), which is up over 40% for the year and the proliferation of AI should keep it elevated.

As AI use grows, semiconductors will need to pair the technology with hardware. These semiconductors will need to be able to have the processing power to harness AI. Therefore, more innovation in semiconductors will be necessary, providing investment growth opportunities in the industry.

Global competition has been heating up between the United States and China, leading to new innovations in semiconductor technology. In recent news, China made a significant breakthrough in creating wafers for semiconductors, which could potentially be used in consumer electronic devices.

That should continue to spur competition between the two largest economies. More efficient semiconductors will likely lead to increased AI usage and revenue. AI and the semiconductor industry are both seeing exponential growth in terms of market size. Therefore, interplay between the two has been palpable.

“Tremendous progress in artificial intelligence (AI) is leading to significant revenue generation due to increased demands in semiconductor production, which is expected to exceed $100 billion by 2027, leading to exponential expansion of the industry,” The News reported. “Semiconductors are essentially small chips with the property of ensuring conductivity between conductors and non-conductors – making them a key component of electronic devices in modern times, especially generative artificial intelligence platforms and programs.”

Locked in on Large Caps

SOXQ is based on the PHLX Semiconductor Sector Index. The index is designed to measure the performance of the 30 largest U.S.-listed securities of companies engaged in the semiconductor business. Semiconductors include products such as memory chips, microprocessors, integrated circuits and related equipment that serve a wide variety of purposes in various types of electronics. Personal household products, automobiles, and computers, among others, all use these semiconductors.

The Index includes companies engaged in the design, distribution, manufacture and sale of semiconductors. Familiar names such as NVIDIA Corps, Broadcom, and Intel appear in the fund’s holdings. Those companies in paticular comprise the top three allocations in the fund.

As mentioned, large cap exposure comprises almost 90% of the fund. 36% of that focus goes to large cap growth, so investors can get exposure to additional breakthroughs in semiconductor technology.

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