Semiconductor ETFs Hit New High

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Growing optimism about the prospects of the Fed's interest rate cut in June has led to a stock market rally. In fact, the semiconductor sector has outperformed, with the Philadelphia Semiconductor index reaching a record high, gaining 23.7% this year.

Many semiconductor ETFs also touched new 52-week highs. These are Invesco PHLX Semiconductor ETF (SOXQ - Free Report), iShares Semiconductor ETF (SOXX - Free Report), VanEck Vectors Semiconductor ETF (SMH - Free Report), SPDR S&P Semiconductor ETF (XSD - Free Report) and Strive U.S. Semiconductor ETF (SHOC - Free Report).


Inside the Surge

The Federal Reserve Chair Jerome Powell told a U.S. Senate committee that the central bank is “not far" from being confident that inflation is declining toward the 2% target, which would make rate cuts possible. The comment has bolstered investor expectations for the first rate cut in June, leading to strong risk-on trade. Traders now see a 72.7% chance of the first rate cut in June, per CME Group's FedWatch tool.

Additionally, the hottest trade – Nvidia (NVDA - Free Report) – continued to move higher after Mizuho Securities raised the price target on the stock, highlighting a bullish outlook for AI technologies. This move not only boosted Nvidia’s shares by approximately 3.5% but also had a positive spillover effect on other key players in the semiconductor space.

Some of the leading semiconductor companies like Broadcom (AVGO - Free Report), Intel (INTC - Free Report), and Micron Technology (MU) not just benefited from Nvidia's strength but were also buoyed by their own company-specific valuation tailwinds that pushed their shares up by 3.6%, 3.7% and 4%, respectively.

Intel stood out with a potential $3.5 billion investment from the U.S. government aimed at bolstering chip production for military and intelligence use. Stifel upgraded its rating from hold to buy and raised the target price on Micron Technology from $80 to $120 per share, underscoring the company's strong position. Meanwhile, Broadcom's ascent was fueled by Mizuho's increased confidence, which was reflected in a price target hike from $1,450 to $1,550 per share. The analyst raised the price target, citing increased demand for custom AI chip designs and new Ethernet tailwinds.


Solid Outlook

Semiconductors have been the most important drivers of the overall growth in technology, given the use of chips in day-to-day life from cars, electronic gadgets to planes and weapons. Demand will continue to trend higher, given increased digitization in various corners like healthcare, transport, financial systems, defense, agriculture and retail, among others. The rapid adoption of cutting-edge technology like cloud, Internet of Things, autonomous cars, gaming, wearables, VR headsets, drones, virtual reality devices, artificial intelligence, cryptocurrencies, 5G and other advanced information technologies should continue to fuel growth.

Further, the introduction of expensive and new-generation chips has been leading to an enhancement in the product mix for semiconductors.


ETFs in Focus

Invesco PHLX Semiconductor ETF (SOXQ)

Invesco PHLX Semiconductor ETF offers exposure to the largest U.S.-listed securities of companies engaged in the semiconductor business. It tracks the PHLX Semiconductor Sector Index, holding 30 stocks in its basket. SOXQ is concentrated on the top two firms, indicating concentration issues.  

Invesco PHLX Semiconductor ETF has accumulated $303.1 million in its asset base. It charges 19 bps in annual fees and trades in an average daily volume of 180,000 shares. Invesco PHLX Semiconductor ETF has a Zacks ETF Rank #1 (Strong Buy).

iShares Semiconductor ETF (SOXX)

iShares Semiconductor ETF follows the NYSE Semiconductor Index and offers exposure to U.S. companies that design, manufacture, and distribute semiconductors. It holds 30 securities in its basket.

iShares Semiconductor ETF has amassed $12.8 billion in its asset base and trades in a volume of about 1.3 million shares a day. The product charges a fee of 35 bps a year from investors and has a Zacks ETF Rank #1 with a High risk outlook.

VanEck Vectors Semiconductor ETF (SMH)

VanEck Vectors Semiconductor ETF offers exposure to the companies involved in semiconductor production and equipment. SMH follows the MVIS US Listed Semiconductor 25 Index, which measures the overall performance of companies involved in semiconductor production and equipment. VanEck Vectors Semiconductor ETF holds 26 stocks in its basket.  

VanEck Vectors Semiconductor ETF has managed assets worth $17.1 billion and charges 35 bps in annual fees and expenses. SMH is heavily traded with a volume of 8.2 million shares per day and has a Zacks ETF Rank #1 with a High risk outlook.

SPDR S&P Semiconductor ETF (XSD)

SPDR S&P Semiconductor ETF offers exposure to the semiconductor segment of the broader technology sector and tracks the S&P Semiconductor Select Industry Index. It holds 35 stocks in its portfolio. SPDR S&P Semiconductor ETF has AUM of $1.5 billion and an average daily volume of about 56,000 shares. SPDR S&P Semiconductor ETF charges 35 bps in fees per year and has a Zacks ETF Rank #1.

Strive U.S. Semiconductor ETF (SHOC)

Strive U.S. Semiconductor ETF seeks broad market exposure to the U.S. semiconductor sector. It follows the Solactive United States Semiconductors 30 Capped Index and holds 32 stocks in its basket with moderate concentration on the top five firms.

Strive U.S. Semiconductor ETF has AUM of $60.1 million and charges 40 bps in annual fees. It trades in a volume of 12,000 shares per day on average and has a Zacks ETF Rank #2 (Buy).


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