Of late, some air has come out of the semiconductor bubble, but that’s been to the benefit of the Direxion Daily Semiconductor Bear 3X Shares (SOXS). Entering July 27, the leveraged bearish ETF boasted a one-month gain of nearly 58%.
Adding to that, semiconductor weakness earlier that week pushed many of the marquee chip names lower, handing SOXS another impressive intraday performance. While recent price action suggests that SOXS is the path of least resistance for aggressive traders looking to capitalize on semiconductor headlines, the Direxion Daily Semiconductor Bull 3x Shares (SOXL) should be on traders’ watchlists as well
SOXL, one of the leading names among bullish geared chip ETFs, attempts to deliver 300% of the daily returns of the NYSE Semiconductor Index. Obviously, given the recently scintillating performance notched by the bearish SOXS, SOXL has been a rough trade. Yet, near-term gyrations aside, the semiconductor space is still backed by solid fundamentals that could support occasional use of SOXL.
SOXL Can Rebound
No geared ETF should be treated as anything other than a short-term trade, particularly potent vehicles like SOXL and SOXS. However, SOXL could still offer a compelling rebound potential for tactical traders. The Semiconductor Industry Association’s (SIA) recent State of the U.S. Semiconductor Industry report highlights several key reasons why.
Among the report’s findings is that while global chip competition is intensifying, the U.S. is still leading the industry. This is pertinent to SOXL because the ETF’s index is comprised of domestic chip stocks.
“The United States continues to expand its domestic semiconductor ecosystem. Since 2020, semiconductor companies have announced more than $770 billion in private-sector investments across 160 projects in 30 states, strengthening domestic manufacturing, equipment production, materials, packaging, and research capabilities,” noted the SIA. “These investments are helping build a more resilient semiconductor supply chain, supporting high-paying American jobs, and reinforcing the nation’s economic and national security while complementing the industry’s globally interconnected supply chains.”
Semiconductors Still Essential to AI Infrastructure
Experienced traders know that ETFs such as SOXL and SOXS are frequently moved by artificial intelligence (AI) headlines. That trend is likely to continue for the foreseeable future. Although recent headlines have been a drag on chip stocks of late, once the AI trade reenters the spotlight in bullish form, SOXL could regain its leadership position. The SIA suggests strong reasons to believe this shift is on the horizon.
“Every layer of AI infrastructure depends on semiconductor technologies, from logic processors and memory to analog and foundational chips,” said the SIA. “A single AI server rack contains more than 4,500 packaged semiconductors, with chips representing more than 95% of an AI server rack’s value and more than half of total AI data center capital expenditures. According to SIA and Deloitte research, government and industry are expected to invest more than $4 trillion in AI data center infrastructure globally through 2028, with up to $2.8 trillion of that investment dedicated to semiconductors.”
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