SOXX ETF Up 23% YTD – Will The Semiconductor Growth Story Continue?

The iShares Semiconductor ETF (SOXX), a tracker of the semiconductor industry, has recently shown remarkable performance, surging more than 69% in the past 12 months. This growth has led SOXX to outshine large-cap stalwarts like the Invesco QQQ Trust (QQQ) and the SPDR Dow Jones Industrial Average ETF (DIA), stirring interest among investors looking for robust returns in the tech sector.

The race to the top isn't just an isolated event; it's bolstered by the significant strides in individual semiconductor stocks. Nvidia, a heavyweight in the GPU market, has seen its stock price catapult to new heights, propelling the company's market cap to a staggering $2.3 trillion. This makes it the third-largest company globally by market capitalization, reflecting the burgeoning value investors are placing on semiconductor leaders.

Another startling growth story comes from Super Micro Computer (SMCI), which saw its stock price skyrocket by over 300% in 2024, bringing its market cap to an impressive $65 billion. This adds to the allure of semiconductor investments, showcasing the potential for substantial gains.

Further fueling the sector's rise is AMD, another semiconductor titan, whose stock price has elevated by 50% this year. This leap has lifted AMD's market cap to over $335 billion, underlining the industry's forward momentum.

The semiconductor industry isn't just riding on the coattails of a few large companies. Firms like Broadcom, Intel, Applied Material, Taiwan Semiconductor, and Lam Research have also delivered strong financial results this year, an outcome of the soaring demand for semiconductor components across various technologies.

Investors eyeing the iShares Semiconductor ETF must, however, navigate the waters with caution. Despite the optimism, there lies the inherent risk of overvaluation, as well as the potential for an oversupply in the market. Governments globally are investing heavily in semiconductor capabilities, which could eventually lead to a glut.

The SOXX ETF, as of its recent portfolio, has significant exposure to the titans of the industry—Nvidia, AMD, and Broadcom—accounting for over $3.87 billion of the $13 billion fund. This concentration may both be an attractive proposition due to their market dominance and a point of vulnerability if any of these significant holdings were to falter.

Looking back at SOXX’s trajectory, the ETF found its floor at $95.20 in October 2022 and has since ascended, trading above the 50-week and 25-week moving averages, signalling a continuing uptrend.

While the iShares Semiconductor ETF presents an enticing opportunity underscored by the sector's robust performance and promising individual stock gains, investors must weigh it against the backdrop of sector-specific risks. The comprehensive growth stories, alongside the rising demand for technology, position SOXX as an ETF to watch, though a cautious approach remains prudent given the dynamic nature of the stock market and the semiconductor industry at large.