Here’s why the SMH and SOXL ETFs have gone parabolic

By:
on Feb 22, 2024
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  • The SMH and SOXL ETFs have surged hard in the past few months.
  • The trend may continue after the strong Nvidia earnings on Wednesday.
  • There are signs that we are in a semiconductor supercycle.

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The Direxion Daily Semiconductor Bull 3x Shares (SOXL) and the VanEck Semiconductors ETF (SMH) stock prices have embarked on a major bull run this year. SOXL surged to a high of $41.27 this month, 378% above its lowest point in 2023. SMH, on the other hand, has moved from a low of $82.7 in 2022 to over $200.

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SMH vs SOXL

SMH vs SOXL ETFs

Semiconductor stocks are booming

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The SMH and SOXL ETFs are two funds that are extremely different with each other. SMH is one of the top ETFs that track semiconductor companies from around the world. The biggest holdings are companies like Nvidia, Taiwan Semiconductor, Broadcom, AMD, and ASML.

These are giant companies with a combined market cap of over $3 trillion. The fund has over $14 billion in total assets and tracks the MVIS US Listed Semiconductor 25 Index.

SOXL, on the other hand, is a fairly different ETF in that it is a highly leveraged one and that it seeks to replicate the daily gains of the NYSE Semiconductor index. In this case, if the index rises by 1% in a day, SOXL will rise by 3% in that period. This means that it performs well when semiconductor companies are thriving.

The main reason why the SOXL and SMH ETFs are soaring is that most chip companies are thriving. Nvidia has led the way as its stock has more than doubled in the past few months. A company that was valued at less than $500 billion in 2022 has seen its market cap surge to over $1.8 trillion. 

Nvidia’s valuation will likely hit $2 trillion after it published strong financial results. In its earnings statement, the firm said that its total revenue jumped to over $22 billion in the last quarter. It also expects this growth to continue in the coming months because of generative AI demand.

The strong Nvidia’s results has triggered gains in other semiconductor companies. For example, Super Micro Computer (SMCI) stock price surged by more than 10% in extended hours. Similarly, companies like Taiwan Semiconductor, Broadcom, AMD, and Intel have soared.

SMH and SOXL ETFs outlook

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Therefore, there is a sense in which we are in a strong bull run in the semiconductor industry as key sectors boom. Generative AI in particular, is expected to continue booming in the coming years. In a statement, Colette Kress, the CFO of Nvidia said:

“The world has reached a tipping point. Fourth-quarter Data Center revenue was driven by generative AI and training. We estimate approximately 40% of Data Center revenue for the past year was from AI.”

Therefore, from a fundamental and technical perspective, there is a likelihood that SOXL and SMH ETFs will continue doing well in the near term. 

The only thing that could change this is if something breaks such as when one of the top players publish weak financial results. But the biggest ones like Nvidia, Taiwan Semiconductor, and AMD published theirs recently.

Technically, the two moving averages remain above all moving averages and are constantly making higher highs and higher lows. This is a sign that they will continue rising. SMH will likely jump from $200 to $250 soon while SOXL will likely soar to $50.

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