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The iShares Semiconductor ETF offers exposure to multiple companies positioned to benefit from increased spending on advanced memory.
The demand for high bandwidth memory (HBM) in AI chips is rapidly increasing, with companies like Nvidia and Advanced Micro Devices requiring significantly more HBM4. However, increasing the supply of memory chips is constrained by factors such as long construction times for new foundries, shortages of skilled workers, complex permitting, and the need for energy infrastructure, leading to tight supply well beyond 2027. The growth in HBM production also strains the broader memory market by diverting wafer supply from conventional memory.
The iShares Semiconductor ETF (SOXX) offers investors a diversified way to gain exposure to the AI memory supply chain. It includes key memory producers like Micron Technology, major chip designers such as Nvidia and Advanced Micro Devices that drive HBM demand, and semiconductor manufacturing equipment suppliers like Lam Research, Applied Materials, and KLA, which are crucial for expanding production. While diversified, it is also concentrated, with its top 10 holdings accounting for about 60.8% of assets, and it notably excludes other major HBM suppliers like SK Hynix and Samsung Electronics.
The iShares Semiconductor ETF experienced a recent sell-off, improving its entry point, but it still trades at a premium valuation (over 66 times earnings as of July 21). This premium presents downside risks if AI spending slows, memory prices decline, or new memory supply exceeds expectations. Despite these risks, SOXX provides a broad investment across the AI memory supply chain, making it a potential option for long-term investors who can tolerate semiconductor market volatility.