What's Driving the Insane Rally in Chip Stocks & ETFs?
Semiconductor stocks are among the hottest areas of the market currently. The PHLX Semiconductor Index posted its 18th consecutive gain on Friday, its longest streak on record, according to The Wall Street Journal.
Friday’s catalyst for the chip rally was Intel’s (INTC) better-than-expected results and strong guidance for the current quarter. Intel surged 24% and also lifted other chip stocks.
The iShares Semiconductor ETF (SOXX) is up 47% year to date, after surging 41% in 2025 and more than 1,000% over the past 10 years, significantly outperforming the broader indexes.
These stocks have been among the biggest beneficiaries of the AI boom, as these companies provide the “picks and shovels” for the AI gold rush.
Semiconductor ETFs are also among the best-performing ETFs of the past decade, as chips, the fundamental building blocks of computation, have become integral to everything from smartphones and cars to laptops, PCs, video games, and data centers.
Big Tech AI Spending Boosts Chip Sector
Earnings are front and center this week as some of the world’s biggest companies prepare to report results. Microsoft (MSFT), Google (GOOG), Amazon (AMZN), and Meta Platforms (META) are set to spend a combined $660 billion this year on AI, representing a 65% increase from their 2025 capital expenditures.
They are not expected to slow down their spending as the AI race heats up. A large portion of that spending will go toward chips. According to Bloomberg Intelligence, the semiconductor sector’s revenues are expected to grow by about 57% in 2026, twice the rate of the overall tech sector.
However, investors are now demanding to see tangible returns on that massive outlay. It remains to be seen whether these investments will deliver strong returns, and the answer may not be clear for quite some time.
Chip Stocks Driving the Gains
Intel shares surged earlier after it announced a partnership with Elon Musk on his Terafab project. Intel would build custom chips for SpaceX, xAI, and Tesla (TSLA). These would include chips for robotaxis and the Optimus humanoid robot, as well as for space ventures.
Intel, which lost its edge years ago to Taiwan Semiconductor (TSM), also received a boost when NVIDIA (NVDA) announced a $5 billion investment in the company. That investment followed the US government’s 10% stake in Intel. Intel’s shares have nearly tripled since then.
Earlier in February, Meta announced plans to purchase AMD (AMD) chips to power its massive AI projects over the next five years. This deal is potentially valued at more than $100 billion.
Memory chip stocks like Micron (MU) have skyrocketed amid investor concerns about shortages of memory chips, which are critical inputs in AI data centers.
TSMC, the world’s largest contract chipmaker, soared to a record high last week as Taiwan’s regulators eased investment limits for funds in single stocks. Earlier, the company reported a 58% increase in first-quarter earnings, as the AI boom continues to drive demand for cutting-edge chips.
Why Diversified Exposure via ETFs Makes More Sense
NVIDIA was the biggest beneficiary of the ongoing surge in AI-related spending, as demand for its advanced chips showed no signs of slowing. In the earlier phase of the AI boom, most companies focused on training large language models, a task for which NVIDIA’s GPUs dominated with little real competition.
Now, as the industry shifts toward monetizing AI applications, the emphasis has moved from training to inference, where models generate responses to user queries in real time. In this segment, NVIDIA faces growing competition from rivals offering more affordable and customizable chips optimized for inference workloads.
AI companies are also increasingly deploying AI agents. The rise of inference and agentic AI has driven a massive increase in demand for CPUs, or central processing units.
NVIDIA still remains the king of the AI trade. At its latest annual GTC conference, CEO Jensen Huang announced that the company now expects to secure up to $1 trillion in chip orders for its next-generation AI platforms by 2027, versus earlier guidance of $500 billion by the end of 2026.
ETFs provide diversified exposure to a broad basket of semiconductor stocks, including chip designers, foundries, equipment manufacturers, and memory makers.
To learn more about the VanEck Semiconductor ETF (SMH), iShares Semiconductor ETF (SOXX) and SPDR S&P Semiconductor ETF (XSD), please watch the short video above.
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