It would not be an exaggeration to say that animal spirits have returned to the semiconductor field. It seems like a long time ago now, but the sector was actually really struggling in his 2022. However, advances in artificial intelligence (AI) and the compelling long-term opportunities presented by this technology have rekindled investor enthusiasm for this sector of the market. Investors are increasingly aware of the fact that semiconductors are driving the AI revolution.
After Nvidia (NASDAQ: NVDA) On its roaring first-quarter earnings call (more on that below), a Susquehanna sell-side analyst called AI the “new gold rush” and praised NVIDIA for selling AI picks and shovels. NVIDIA is dominating the headlines right now, and it’s no surprise that Marvel (NASDAQ: MRVL) and Advanced Micro Devices (NASDAQ: AMD).
One way to collectively invest in these pick plays is through a centralized semiconductor ETF such as the Invesco PHLX Semiconductor ETF (NASDAQ: SOXQ). So let’s take a look at this semiconductor-focused his ETF, which gives investors greater exposure to these major semiconductor companies.
What are SOXQ ETFs?
SOXQ is Invesco’s $128 million relatively small ETF that invests in the PHLX Semiconductor Sector Index. The index is designed to measure the performance of the top 30 US listed semiconductor stocks. According to Invesco, this includes all parts of the semiconductor supply chain, including companies “involved in the design, distribution, manufacture and sale of semiconductors.”New York Stock Exchange: IVZ). Indices and funds are reconstituted annually and rebalanced quarterly.
With investor enthusiasm for AI and semiconductors growing, it’s perhaps not surprising that SOXQ is up 42% year-to-date. This ETF was only launched in 2021, so it doesn’t have much of a long-term track record. However, the PHLX Semiconductor Index itself has been around for a long time. As of the end of April, the index itself had returned 21.7% in total over the past three years. Over the past five and ten years, the PHLX Semiconductor Index has posted equally impressive total returns of 21.2% and 23.1% respectively.
Another feature of SOXQ is its extremely reasonable expense ratio of only 0.19%. This means that an investor who invests his $10,000 in SOXQ will pay only $19 in fees in his first year. This expense ratio is based on the iShares Semiconductor ETF (NASDAQ: SOXX) and VanEck Semiconductor ETF (NASDAQ: SMH), both of which have an expense ratio of 0.35%.
Also, the Global X Robotics & Artificial Intelligence ETF (Nasdaq: Botts) or ARK Autonomous Technologies & Robotics ETF (Bat: ARKQ), the expense ratios are high at 0.69% and 0.75%, respectively. Investing in ETFs with low fees allows him to maintain the value of his portfolio over time.
SOXQ Holdings
SOXQ is not particularly diversified. It holds only 31 stocks and the top 10 stocks represent 64.5% of the fund. Nonetheless, this isn’t necessarily a problem if you genuinely want to enjoy semiconductors and companies like Nvidia, AMD, and Marvell, to name a few.
SOXQ gives investors significant exposure to these AI leaders. NVIDIA is the fund’s largest holding, with a weighting of 11.2%.
At this point, even the most ordinary investor will know what happened on Thursday when Nvidia reported explosive earnings. NVIDIA, which had already more than doubled in price in 2023 and was one of the world’s largest companies by market cap, rose 24.4% to increase its market cap by nearly $184 billion in a single day, becoming a single company. It just fell short of the largest companies in Historically, the market capitalization has increased by one day.
Nvidia is forecasting revenue of about $11 billion for the quarter, up 64% year over year and well above analyst estimates of $7.2 billion. CEO Jensen Huang said generative AI applications like ChatGPT require considerable computing power, driving demand for the company’s chips.
ChatGPT was only released to the public last November, but it quickly became a sensation, reaching over 100 million users in just two months, making it the fastest growing application of all time. The aforementioned Susquehanna analyst marvels at the fact that the virality of these applications has already led to an increase in his Nvidia orders, calling it “unimaginable.”
AMD is far behind Nvidia, with a weight of 10.8% in SOXQ. AMD has its own line of AI chips and has Morgan Stanley analysts (New York Stock Exchange: MS) recently acknowledged that AMD’s AI opportunity could be much bigger than originally predicted. Investment bank analysts initially expected AMD to generate $100 million in AI revenue in 2024, but they could generate up to $400 million or even $1.2 billion in a bullish scenario. Stated.
Besides these two giants, SOXQ is made up of people from other top semiconductor companies. Broadcom (NASDAQ: AVGO) is the third largest holding with a weight of 9.1%. Texas Instruments (NASDAQ: TXN) manufactures the analog chips that are critical to all digital devices and is in fourth place at 6.9%.
Taiwan Semiconductor (New York Stock Exchange: TSM) and ASML holding (NASDAQ: ASML), is the cornerstone of the semiconductor supply chain and makes chips for the likes of Nvidia and AMD. Lam Research (NASDAQ: LRCX), also represented here with a weight of 4.3%, manufactures and services the equipment needed to manufacture semiconductors. Such companies can be thought of as pickaxe and shovel providers to pickaxe and shovel providers.
Finally, the aforementioned Marvel has 4% of the fund. Marvel saw NVIDIA’s staggering performance and historic profits on Thursday and said, “Wait a minute,” during its earnings call on Friday. So Marvel’s stock jumped nearly 30% today. In a conference call, Marvel revealed his AI-related earnings, saying he made $200 million in revenue from his AI business last year. He expects AI’s revenue to double in each of the next two fiscal years.
Below you can see the top 10 stocks for SOXQ.
What is your target price for SOXQ shares?
Analysts consider SOXQ a “moderate buy,” but SOXQ’s average price target of $28.87 suggests only 3.2% upside from current prices. This means SOXQ could be overbought in the short term (more on that later).
Of the 442 companies rated by SOXQ analysts, 68.1% are buying, 27.8% are holding and 4.1% are selling.
Moreover, SOXQ’s ETF Smart Score has an excellent score of 8. Since this is an article about semiconductors and AI, it’s only natural to see how non-human quantitative models see his SOXQ. SmartScore is TipRanks’ proprietary quantitative stock scoring system that evaluates stocks based on eight different market factors. Results are data-driven and require no human intervention. A smart score of 8 or higher equates to an Outperform rating.
Forward-looking — take the long-term view
In conclusion, SOXQ is a powerful and low-cost way to expose yourself to pick-and-shovel play that continues to benefit from the AI megatrend. It’s hard to argue that companies like Nvidia, AMD, and Marvell won’t be major players in advancing this technology for years to come.
In the short term, these stocks are all hitting 52-week highs, and some of them are likely to pull back at some point. On the other hand, AI is clearly taking hold and is only just beginning to transform many industries, so we wouldn’t want to leave those names out of the way either.
So my strategy (not financial advice) with ETFs like this is to start a position now to get a foothold in this part of the market, then dollar cost average on the way to building a full position. is to pull back through
Disclosure
