SOXQ: Cheap Exposure To Nvidia, Broadcom, And Other High-Quality Semiconductor Stocks

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The S&P 500 is expected to grow earnings by 10.8% this year, with projected sales growing 4.8%.The Information Technology sector is expected to outpace the S&P 500 in sales projections, led by the ...

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Semiconductor Stocks\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-04-17 00:29 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4684040-soxq-cheap-exposure-to-high-quality-semiconductor-stocks><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>The S&P 500 is expected to grow earnings by 10.8% this year, with projected sales growing 4.8%.The Information Technology sector is expected to outpace the S&P 500 in sales projections, led by the ...</p>\n\n<a href=\"https://seekingalpha.com/article/4684040-soxq-cheap-exposure-to-high-quality-semiconductor-stocks\">Source 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SGD","SMH":"半导体指数ETF-HOLDRs"},"translate_title":"SOXQ：廉价投资英伟达、博通和其他高质量半导体股票","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"AMD":1,"AMD.AU":1,"AVGO":1,"AVGOP":1,"SOXX":1,"SOXQ":1,"SMH":1,"NYSE":1,"NVDA":1,"MSFT":1,"META":1,"FDN":0.9,"VOO":0.89,"SPY":0.89,"SH":0.6,"ESmain":0.6,"OEF":0.6,"OEX":0.6,"SDS":0.6,"SPXU":0.6,"SSO":0.6,"UPRO":0.6,".SPX":0.6,"IVV":0.6},"content_text":"The S&P 500 is expected to grow earnings by 10.8% this year, with projected sales growing 4.8%.The Information Technology sector is expected to outpace the S&P 500 in sales projections, led by the semiconductor complex of stocks.Invesco PHLX Semiconductor ETF provides attractive opportunities to buy at current levels with a low expense ratio.The semiconductor market is projected to grow by a strong +20% this year, with momentum increasing through FY26.   D3Damon/E+ via Getty Images Investment Thesis Markets finally appear to show some signs of moderating their YTD gains in line with future expectations of the underlying revenue growth and earnings growth in the S&P 500. Per FactSet’s latest consensus estimates, the S&P 500 is expected to grow earnings by ~10.8% this year, while earnings are expected to continue growing to ~13.4% in FY25. These consensus estimates reflect strong earnings growth, which will be supplemented by stronger than usual top-line numbers, with projected sales growing ~4.8% this year, while FY25’s projected sales for the broader markets are expected to grow by a robust 5.9%. In both FY24 and FY25, FactSet’s projections estimate the Information Technology sector will continue to outpace the S&P 500 in sales projections by approximately double the growth rates in both years. The semiconductor complex of stocks will continue to lead the lion's share of those gains seen in the top line and bottom line growth expectations over the next couple of years, at least aided by continued higher spend allocations towards semiconductor products. In such an optimistic scenario, the Invesco PHLX Semiconductor ETF (NASDAQ:SOXQ) continues to provide investors with attractive opportunities to buy at these levels. For reasons that I will unpack further below, I rate SOXQ as a Buy here. About the SOXQ Fund The PHLX Semiconductor ETF’s assets are managed by investment management company Invesco. Via the SOXQ fund, Invesco aims to provide investors with exposure to a wide array of business segments within the semiconductor industry, ranging from memory chips, microprocessors & other processing units, integrated circuits, and other related semiconductor equipment. The fund seeks to achieve its objective by tracking the Philadelphia Semiconductor Index (SOX). SOX is one of the oldest semiconductor indices on the market, designed to track the performance of semiconductors. The index is created and managed by the Philadelphia Stock Exchange (PHLX) and supported by PHLX’s owner, Nasdaq. Based on its capitalization-weighted index methodology, the SOX index is composed of ~30 stocks that are required to meet index criteria, some of which I have added below:  The company \"must have business operations that primarily focus on the design, distribution, manufacture, and sale of semiconductors.\" \"Stocks must be listed on the Nasdaq, New York Stock Exchange (NYSE), NYSE American, or the CBOE Exchange.\" Securities must have a minimum market capitalization of at least $100 million and must have traded at least 1.5 million shares in each of the six calendar months leading up to the reference date.  I have added a chart below that shows the Top 15 Holdings vs. the Constitution of SOXQ’s Funds by categories. Top 15 holdings for Invesco’s PHLX Semiconductor ETF (etfdb) Peer Comparison Here is how SOXQ compares with some of its peers. The list below is ordered by largest-to-smallest fund in terms of Assets Managed. Comparison of Semi-focused etfs by various fund metrics (etfdb) SOXQ is the youngest ETF as compared to some of its larger peers. VanEck’s Semiconductor ETF (SMH) and the iShares Semiconductor ETF (SOXX) are some household names when it comes to ETF investing with particular exposure to semiconductors. Hence, it comes as no surprise that SOXQ is also the smallest ETF in terms of assets managed, with Invesco launching the SOXQ almost three years ago in 2021. The biggest draw to SOXQ is the fund’s expense ratio. At just 0.19%, I believe SOXQ dramatically undercuts the fees of its peers in the same industry. The semiconductor space tends to be cyclical in most of the sub-segments within this industry, and volatility is usually second nature in this complex of stocks. Most semiconductor-specific ETFs usually charge higher expense fees, as can be seen in the SMH and SOXX ETFs, with the cost of investing in these funds usually being 35 cents for every 100 dollars invested. In contrast to this, SOXQ offers investors relatively cheap exposure to some high-quality companies in the semiconductor space, such as Nvidia (NVDA), Broadcom (AVGO), and AMD (AMD). However, I will note that the SOXQ is better suited for investors with mid-to-long-term horizons since the ETF is thinly traded as compared to its larger peers. This can also be seen in the chart below when comparing the fund inflows of the SOXQ over the past year vs. those of its peers. Fund inflows in SOXQ look relatively stable as compared to its peers (etfdb) From the chart above, I can see that while all semiconductor ETFs have benefited from inflows over the past year, fund inflows are more pronounced in the larger ETFs, such as SMH, followed by a relatively stable trend of inflows seen in SOXQ. Outlook and Valuation In a recent study by KPMG, the consulting firm surveyed professionals from 172 semiconductor firms and found that headwinds did exist for this industry, marked by inflationary pressure, geopolitical uncertainty, inventory surpluses, ongoing supply chain disruption, and demand challenges in the PC and mobile device markets. But all those headwinds were single-handedly offset by the astronomical demand for semiconductor products fueled by the need for high-processing chips and networking components such as Nvidia’s H100 GPU or Broadcom’s Jericho3 Ethernet switches. Since last year, enterprises have been rushing to upgrade and add to their back-end data centers and networking infrastructure, with a focus on AI. Last year, IDC projected global spending on artificial intelligence ('AI'), including software, hardware, and services for AI-centric systems, will grow at a compounded growth rate of 27% through 2026. Already, multiple projections for the semiconductor industry, led by IDC and WSTS, estimate that the semiconductor industry is expected to post strong double-digit growth of north of 20% in FY24 alone. These forecasts also strike a similar level of optimism to the FactSet consensus estimates for the broader market and the IT sector that I had mentioned at the start of this post. Given these strong, forward-looking industry-wide projections, the current PE of 29x seems quite reasonable to me, especially since IDC’s semiconductor forecast expects growth to pick up in the second half of this year. In that case, any pullbacks seen in SOXQ are definitely to be bought per my recommendation. Risks & Other Factors To Look For So far, all outlooks on the semiconductor space are based on the core assumption that the economy continues to be robust despite moderate inflation levels that are still being seen and interest rates that are either at these levels or are cut from here on out. If the economy sees a slowdown or a surprise recession, all semiconductor stocks will likely be harshly re-rated due to the strong outlook that this industry has at the moment. I will be looking for signs of a slowdown in the economy as well as any updates from the research that I alluded to earlier in this post to re-evaluate my outlook on the semiconductor industry in case of any material change. Moreover, the upcoming earnings season will also be pivotal as the management of some large enterprises, such as Microsoft (MSFT) and Meta Platforms (META), update their plans for spending on semiconductors. Takeaways The semiconductor space continues to offer investors an attractive opportunity, with strong tailwinds of spending and enterprise demand that show no signs of stopping so far. With the markets pulling back, the SOXQ has started to enter some enticing levels for investors to re-enter or add to positions.  I recommend SOXQ as a Buy.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2428877205"}