SOXX: AI-Fueled Capex Upgrade Cycle Tailwinds Still Intact

seekingalpha06-14

Mykola Pokhodzhay Investment Thesis Semiconductor stocks are enjoying one of the strongest tailwinds in the lifetime of their business at the moment. Technology firms and AI startups are in a race to ...

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Technology firms and AI startups are in a race to ...</p>\n\n<a href=\"https://seekingalpha.com/article/4699228-soxx-etf-ai-fueled-capex-upgrade-cycle-tailwinds-still-intact\">Source Link</a>\n\n</div>\n","source":"seekingalpha_fund","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>SOXX: AI-Fueled Capex Upgrade Cycle Tailwinds Still Intact</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nSOXX: AI-Fueled Capex Upgrade Cycle Tailwinds Still Intact\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-06-14 16:25 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4699228-soxx-etf-ai-fueled-capex-upgrade-cycle-tailwinds-still-intact><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Mykola Pokhodzhay Investment Thesis Semiconductor stocks are enjoying one of the strongest tailwinds in the lifetime of their business at the moment. Technology firms and AI startups are in a race to ...</p>\n\n<a href=\"https://seekingalpha.com/article/4699228-soxx-etf-ai-fueled-capex-upgrade-cycle-tailwinds-still-intact\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"SOXX","symbol_name":"iShares费城交易所半导体ETF","start_time":0,"source_url":"https://seekingalpha.com/article/4699228-soxx-etf-ai-fueled-capex-upgrade-cycle-tailwinds-still-intact","article_id":"2443628113","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1296135852/image_1296135852.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2443628113","pubTimestamp":1718353530,"sourceInfo":{"source_id":"seekingalpha_fund","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Mykola Pokhodzhay Investment Thesis Semiconductor stocks are enjoying one of the strongest tailwinds in the lifetime of their business at the moment. Technology firms and AI startups are in a race to ","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":["rate"],"viewcount":null,"language":"en","relate_stocks":{"SOXX":"iShares费城交易所半导体ETF"},"translate_title":"SOXX：人工智能推动的资本支出升级周期顺风仍然完好无损","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"SOXX":1},"content_text":"Mykola Pokhodzhay Investment Thesis Semiconductor stocks are enjoying one of the strongest tailwinds in the lifetime of their business at the moment. Technology firms and AI startups are in a race to build powerful machine learning models as AI applications take center stage not only in the lives of end users but also in the business models of any business. If there was any doubt that sales might see some form of top, after chip firms like Nvidia (NVDA), Qualcomm (QCOM), and others posted stellar results, Broadcom’s (AVGO) strong Q2 results announced this week quelled those doubts. The sustained strength demonstrated by semiconductor companies has solidified my outlook on this complex of stocks, and I believe there is still a long runway left for semi-stocks. The semiconductor space is notoriously wide and deep, with many smaller industries and market segments benefiting from localized trends within long-term trends. For those purposes, I believe the iShares Semiconductor ETF (NASDAQ:SOXX) is a great way to gain exposure to the semiconductor space.   SOXX is up ~30% ytd (Seeking Alpha) Although SOXX is already up 30% for the year, I believe SOXX is still a Buy. About the iShares Semiconductor ETF The assets in the iShares Semiconductor ETF are owned and managed by iShares, the ETF subsidiary of BlackRock. SOXX is one of the most popular ETFs available to investors who aim to get exposure to the semiconductor space. The fund achieves its objective by tracking the Philadelphia Semiconductor Index (SOX). To be a part of SOXX, the company must also be a component of the SOX index, which is created based on a capitalization-weighted index methodology. Moreover, companies must either design, distribute, manufacture, or sell semiconductor products while being listed on a U.S. exchange to be a SOX component. I have illustrated the top fund holdings in Exhibit A below by sector, market cap, and region.   Exhibit A: Top 15 holdings for iShares Russell 2000 ETF (ETFdb) Peer Comparison As can be seen, some strong names are part of the SOXX ETF shown in Exhibit A above. Over the years, companies such as Nvidia, Broadcom, and Qualcomm have significantly outperformed, enjoying strong secular trends over the past decade, resulting in the fund deploying a significant share of the fund’s assets towards the fund’s top performers. That has resulted in returning +3x the assets invested as per Exhibit B below.   Exhibit B: Comparison of semiconductor-focused ETFs by various fund metrics (Seeking Alpha) SOXX and its largest peer, VanEck Semiconductor ETF (SMH), are the largest semiconductor ETFs available for investors today. First Trust Nasdaq Semiconductor ETF (FTXL) is the third-largest ETF but is also relatively more expensive than its larger peers, with the fund charging investors almost twice the 0.35% that SOX and SMH charge investors. SOXX and SMH are also the most actively traded semiconductor-focused ETFs, per Exhibit B. SOXX does outperform FTXL, but also tracks behind SMH in terms of performance on virtually every investment horizon. This is because SMH has a significantly higher proportion of its fund assets deployed towards outperformers such as Nvidia, as shown in Exhibit C below.   Exhibit C: Top 15 Holdings of SOXX vs SMH (ETFdb) So far, Nvidia has been the biggest beneficiary, and there definitely exists some more upside, as this analyst suggests. This would continue to lead Nvidia higher, but I believe SOXX may have some potential for greater upside because of the composition of its stocks, which are weighted towards companies such as AMD (AMD), Broadcom, Qualcomm, etc. I recently covered AMD, where I explained how AMD has significant scope for TAM expansion/penetration over the next few years. Outlook and Valuation So far, technology firms led by Big Tech have bankrolled the revenue expansion rates and margins for semiconductor firms, as I mentioned earlier. Most firms deploy their cash and capital towards upgrading data center infrastructure, such as GPUs, CPUs, low-latency networking components, data center racks, and other infrastructure products critical for housing the ML models. Technology firms capitalize on their infrastructure spending in their books, which is simultaneously recognized as revenues in the books of semiconductor companies. Hence, I believe tracking capex will be the key to tracking the growth potential of semiconductor firms listed in SOXX.   Exhibit D: Cumulative capex for Big Tech helps semiconductor companies reap big performance benefits over the years (Author, Company sources) As seen in Exhibit D above, Big Tech has grown its capex cumulatively by at least 200–300% since 2019. These companies are expected to continue the growth pace of their respective capex spending over the next few years as AI starts to become more relevant as a revenue stream. As per Exhibit E below, these companies are expected to ramp up their capex spending to at least $200 billion in 2024 as well, per market expectations.   Exhibit E: Big Tech is still investing heavily in ramping up capex in 2024 (Jefferies, Company Data via Yahoo Finance) Some forecasts also point to capex growing at a 38% CAGR, from $200 billion to $1 trillion within the next five years. Such growth rates are key to the bullish outlook I have for semiconductor stocks in SOXX. Also note the growth rates for Microsoft's capex, which is expected to outpace its peers as per Exhibit E. Microsoft is a key partner with AMD and Qualcomm as it ramps up the business of its own data center chips and AI PCs. Based on this outlook, I believe the current valuation multiple of 27x is still reasonable given that the long-term earnings growth for SOXX is expected to be ~25%, as shown in Exhibit F. For the sake of comparison, the S&P 500 trades at a forward PE of ~21x for a long-term earnings growth of ~8%.   Exhibit F: SOXX valuation metrics (Morningstar) By itself, a valuation of 27x may be perceived as expensive, in which case, investors can wait for SOXX to pull back to the 20-day or 50-day moving average. Risks & Other factors to look for Since my outlook is long-term, I believe economic slowdowns/recessions and consumer spending slowdowns are the two most important factors that will indirectly dampen the outlook for semiconductor stocks. In cases of slowdowns, technology firms will cut the pace at which they invest their capex dollars, which will add headwinds to companies in SOXX. Takeaways In my opinion, SOXX continues to present itself with opportunities to benefit from long-term secular tailwinds that are currently in place for the companies in the SOXX index to benefit from. As long as the appetite for AI remains, technology firms will double down on spending on increasing their compute capacity needed to efficiently process models, and SOXX stands to hugely benefit from these trends.  For now, I recommend buying SOXX at current levels.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"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":"4.28.1","shortVersion":"4.28.1","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/2443628113"}