Traders Can Lean on Semiconductor Strength Through 2024

2023 was a memorable year for AI, which also benefited the semiconductor industry. The growth trajectory of the former should also boost the latter. And that should allow traders to continue leveraging its strength in 2024.

“The 2024 growth will be driven by capacity increases in leading-edge logic and foundry, applications including generative AI and high-performance computing (HPC), and the recovery in end-demand for chips,” DataQuest said. “The capacity expansion slowed in 2023 due to softening semiconductor market demand and the resulting inventory correction.”

Federal governments around the world realize the importance of fortifying their technological advancements to remain competitive. Therefore, more public investment dollars could pour into the semiconductor industry, especially when chips will require more processing power to run AI applications.

“Resurgent market demand and increased government incentives worldwide are powering an upsurge in fab investments in key chipmaking regions and the projected 6.4% rise in global capacity for 2024,” said Ajit Manocha, SEMI president and CEO. “The heightened global attention on the strategic importance of semiconductor manufacturing to national and economic security is a key catalyst of these trends.”

2 Semiconductor ETFs to Consider

If more bullishness for AI translates into more semiconductor strength, traders can use the Direxion Daily Semiconductor Bull 3X ETF (SOXL). The leveraged fund seeks daily investment results equal to 300% of the daily performance of the PHLX Semiconductor Sector Index, which is a rules-based, modified float-adjusted market-capitalization-weighted index that tracks the performance of the 30 largest U.S.-listed semiconductor companies.

Moreover, traders can leverage companies that are in the forefront of making chips specifically for AI such as Nvidia. That said, traders can add leverage with the Direxion Daily NVDA Bull 1.5X Shares (NVDU).

As noted, Bank of America analysts said the company is in a strong position to invest more into research and development given its free cash flow generation. Its market dominance could result in about $100 billion of incremental free cash flow the next few years.

“Of the ~$100bn FCF, we estimate only ~$30-$35bn could be deployed for buybacks (offset equity dilution), leaving a meaningful $65-70bn in ammunition for new organic & inorganic growth initiatives,” the analysts said.

“NVDA’s relatively depressed trading multiple – just 24x/20x CY24/25E PE versus 67%/26% pf-EPS growth – is partly due to uncertainty in CY25 growth prospects, and partly due to a very hardware dependent business unlike other large-cap software/internet peers that have recurring revenue profiles,” they added.

SOXL Total Return Level Chart

SOXL Total Return Level data by YCharts

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