Semiconductor stocks are among the hottest names on Wall Street this year. And, of course, that’s positive news for the related exchange traded funds.
Case and point, the Invesco PHLX Semiconductor ETF (SOXQ), which tracks the widely observed PHLX SOX Semiconductor Sector Index, is higher by nearly 46% year-to-date. Just past its second birthday, SOXQ, like its peers, is benefiting from the ebullience surrounding artificial intelligence (AI).
SOXQ, which is home to 30 stocks, allocates 16.54% of its weight to Nvidia (NASDAQ: NVDA) and Broadcom (NASDAQ: AVGO) – a pair of the most relevant AI chip stocks. However, the ETF’s AI pertinence doesn’t begin and end with that duo. And that’s a good thing because AI is an evolving, multi-layered theme with complexities and growth opportunities. As one example, it’s seen as vital to bolstering long-slumping productivity.
“Incentives to improve manufacturing productivity were limited in the past decade,” said Morgan Stanley U.S. economist Diego Anzoategui. “Now, however, companies are motivated to invest due to both better technologies and a higher cost of inaction.” For investors, this means considering which companies are adapting and which are continuing with outmoded strategies.”
More Points in Favor of SOXQ
Obviously, AI is a compelling theme and one that puts eyeballs on semiconductor equities and ETFs such as SOXQ. Fortunately, there are other drivers of chip demand and that includes some much, not-so-glamorous sources, including personal computers. There could be more good news for select SOXQ member firms. Companies around the world could be ready to commence a significant PC upgrade cycle.
“Commercial entities are much more regular when it comes to upgrades and they need greater memory capacity and compute power to handle their ever-expanding workloads, especially as we think about the potential for A.I. workloads at the edge,” noted Erik Woodring, Morgan Stanley tech analyst.
There is another perk offered by SOXQ. Some of its holdings residing at the smaller end of large-cap territory aren’t as richly valued as their mega-cap counterparts. While they don’t have the market cap heft of say Nvidia, SOXQ member firms Microchip Technology (NASDAQ: MCHP) and Skyworks Solutions (NASDAQ: SWKS) are among the ETF’s holdings some analysts see as attractively valued.
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