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SOXX And SOXL: Get Ready For Transformational Change In The Chip Ecosystem

Chetan Woodun profile picture
Chetan Woodun


  • The semiconductor (semis) industry should see transformational changes with the new policies by the U.S. administration aimed at balancing the supply chain.
  • Currently, U.S. companies outsource most of their foundry works to Taiwan's TSM, but Intel's plan should change all this.
  • Two ETFs which enable investors to benefit from semiconductor stocks are SOXX and SOXL, but these should be traded differently.

The chip supply chain

After the episodic but effective sanctions seen during Trump's presidency to deny Chinese 5G plays of advanced semiconductor components, there should be more sustained actions by the new administration in concert with European allies, for a redefinition of the supply chain.

This has also become urgent as a result of the COVID-led supply-chain crunch impacting the automobiles sector with more than $60 billion of losses this year, and now propagating to engulf other sectors including electronics equipment and 5G gear.

As a result, there should be grass-roots level impact on chip plays comprising the iShares PHLX Semiconductor ETF (NASDAQ:SOXX), including the fabless ones, or those with no foundry in the U.S, after having outsourced chip-making to the Far East.

For this matter, SOXX follows the PHLX Semiconductor Sector index, a capitalization-weighted index composed of the 30 largest companies primarily involved in the design, distribution, manufacture, and sale of semiconductors.

Figure 1: First 14 holdings of SOXX.

Source: ishares.com

For investors, in a capitalization-weighted index, individual holdings are weighted according to their relative total market capitalization, with higher market caps like Texas Instruments (TXN) carrying a greater percentage of weights.

On the other hand, the Direxion Daily Semiconductor Bull ETF (NYSEARCA:SOXL) tracks the same index, but at three times accelerated mode, before fees and expenses.

Those who have been used to the impressive gains of the Direxion's fund should be on the watch-out for a period of uncertainty due to the central role played by the likes of Taiwan Semiconductor Manufacturing (TSM) in the chip ecosystem, and developments by Intel's (INTC) as well as Biden's proposed infrastructure plan includes $50 billion for the American semiconductor industry

Forthcoming developments

The recent announcement by Intel's (INTC) new Chief Executive, Pat Gelsinger, to invest $20 billion in Arizona to expand the group's

This article was written by

Chetan Woodun profile picture
As a tech-focused industry Research Analyst, my aim is to provide differentiated insights, whether it is for investing, trading, or informational reasons. For this purpose, I am not a classical equity researcher or fund manager, but, I come from the IT world as the founder of Keylogin Information and Technologies Co. Ltd. Thus, my research is often backed by analytics and I make frequent use of charts to support my position.I also invest, and thus, in this tumultuous market, I often look for strategies to preserve capital. As per my career history below, I have wide experience, initially as an implementer in virtualization and cloud, and I was subsequently a team leader and project lead, mostly working in telcos.I like to write around themes like automated supply chains, Generative AI, telcos Capex, the deflationary nature of software, semiconductors, etc and I am often contrarian. I have also covered biotechs.I have also been an entrepreneur in real estate ( a mediocre one), a business owner, and a farmer, and dedicate at least 5 hours per week to working on a non-profit basis. For this purpose, I help needy families by providing sponsored work and contributing peer reviews and opinions for enterprise tech.I have been investing for the last 25 years, initially in mutual or indexed funds before later opting for individual stocks. Got a lot of experience in the 2008/2009 downturn when I lost a lot due mostly to wrong advice. Since then I do my own research and have fallen in love with Seeking Alpha because of the unique perspectives it provides to someone investing hard-earned money as well as access to some of the best analysts.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

This is an investment thesis and is intended for informational purposes. Investors are kindly requested to do additional research before investing.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (41)

Intel is chasing TSM and it is hard to compete with the best. TSM is #1 for a reason. It would be a different story if TSM was just sitting back but they have a very aggressive plan to compete. The problem with US base foundries is that they are more costly and will they be able to compete with countries like China, Taiwan, South Korea where labor is much cheaper is going to be a challenge.
"Currently, U.S. companies outsource most of their foundry works to Taiwan's TSM, but Intel's plan should change all this."

LOL. Intel will never match TSMC on foundry. Too far behind.
@mhargra34 While I neither agree nor disagree with you on this specific issue, it's not a sound argument in the sector. When I bought AMD at $2 per share, the widespread consensus was inevitable bankruptcy on the basis that they would "never catch up with Intel".
A few poached engineers later Intel was trying to catch up with AMD. It is the nature of the sector.
who gets the proposed $50 billion, is it tax breaks for factories??
@mr clark that would be my guess.
@absarokeedave Re SMH - SMH's top holding is TSM (14%) I think the point of the article is how the changing face of the semi industry (Intel's re-entry into foundry services) as well as geopolitical risks (CCP takeover of Taiwan) may come into play. Clearly political leaders would like to see more chip production here in the U.S. not for job creation but for reasons of national/economic security. Intel may take 2 years to become a significant player in foundry but Samsung has already announced plans to expand production in the U.S.

Don't get me wrong, TSM is a powerhouse of a company and has depth of expertise but 14% exposure for SMH in this environment is quite risky.
absarokeedave profile picture
@Nevin_S Agree, just pointing out much different weighting of top 10 holdings SOXX and SMH. I dabble in SOXL and have done well but just in and out each time. I am very long MU, INTC and SOXX. Hold AMD but sold 75% of holding and took nice profits (in at 12).

WiseMonk profile picture
Many thanks for an insightful article. Agree, one should be careful in owning SOXL over longer periods.
What about Apple, which bought Intel's entire unit a year ago, plus employees, to produce it's own chips?
AlexAway profile picture
Apple has silicon engineering (SEG) for ages and all A* and M* are just part of chips they make. Acquisition of Intel's unit is for design of 5G modem.
The leverage in SOXL not worth the risk.
Interesting data and commentary.
@katmandu100 sure it is as long as you dont go hog wild with a big bet. Been trading in and out of soxl for a year now and turned 2k into about 9k
Leveraged ETFs are designed for daily trades. They are volatile, which is how money is made. I make about $10K per day trading SOXL. I will continue to do it as long as I live. I buy 2,000 shares at a time. When it goes up, I sell. When it goes down I buy more and keep buying more as the price drops for me to sell again when the price goes back up. It is beautiful. It is like printing money. The volatility based on leverage allows that to happen. Cheers!
AlexAway profile picture
With moderate level of confidence - INTC will neither ship chips for AMD, nor for AVGO, QCOM, NVDA or any other semis players you might think of.
TSM is open for most of the players and has a lot of expertise (up to 3nm!) due to feedback from these players.

Additionally, there was a small typo: "The three times bullish ETF has been up more than 700% since the beginning of the year ..." - meant to be from Mar 2020 lows, most probably.

I'd also add that current timing is very interesting as all the stars aligned. NAND and DRAM are in bullish cycle - MU, WDC and Hynix shine. Chip shortage is prominent. And, 5G super-cycle has just started. SOXL looks screaming buy, no crystal ball required.

Thanks for the article.
yogatech profile picture
@AlexAway Agree that SOXL is a screaming buy with a long runway. SOXL is my fourth largest position.
@yogatech 👍 bravo, just never lose sight of the fact that your really in a leveraged derivative, not a fund
FrankEllis profile picture
SOXL won't be in fourth place for long!
absarokeedave profile picture
Any reason SMH not included in comparing SOXX? What was date of weighted SOXX holdings shown in graph? SOXX holdings I see in Yahoo finance much different but assume this just what date(s) are for top 10 holding of each.

I agree SOXL best traded day to day. If/when doo doo hits the market SOXL will drop huge regardless of semi industry health at the time
AlexAway profile picture
I think, that the author talks about SOXX as both it and SOXL have PHLX semi (XSOX) as underlying benchmark making them strongly tied.
FrankEllis profile picture
Long and strong SOXL and holding forever. No trading. Consider the 1, 5, and 10 year growth rates in this ETF that holds diversification in an essential segment of Tech. As the article says, 701.1% price appreciation for a one year hold, versus a -0.35% loss for day trading. +2466.59% five year gain compared to Nasdaq gain of 182.94%. Ten year gain of +4593.86% versus Nasdaq gain of 391.03%. (I also hold TQQQ.)
SOXL is as essential to my long term buy and hold portfolio as the semiconductors are to the growth of the U.S. economy. Holding merely means ignoring volatility in the sure and certain knowledge that semiconductors are essential in a multitude of areas and industries in the nation and world. There is ever increasing demand, which will require an ever increasing supply. There is no alternative product that can replace chips, but constant expansion in usage.

*up 700% in a year*

Professionals: never buy and hold this!
@FrankEllis I’d tend to agree, after watching SOXL for 2-3 years now. Yes it drops big at times but keeps coming back up higher and higher with an insatiable demand for electronics, phones, gadgets, IoT, self driving cars, etc. Same reason I am long micron, everything needs more memory to expand computing in real time. Long SOXL.
@FrankEllis You just gave away all my secrets, but I don't agree w/your first sentence. What if it drops 30+% in a day? That's what I call the event horizon in which you'll never return. You need a circuit breaker.
Intel is a huge mess. Not only are they years behind Taiwan Semiconductor Manufacturing Company. Samsung Foundry is kicking Intel the teeth as well. Intel will spend $20 billion, Taiwan Semi $100 billion, Samsung Foundry $116 billion. So Intel is already behind and is getting out-gunned in spending. Things are not looking good for Intel. Apple, Nvidia, AMD, Marvell and the likes will benefit hugely from Intel's demise.
I think Intel will fall short of your expectations. They are years behind TSMC. Chips are what GOOG, MSFT, AMD, NVDA, QCOM, AMZN require to differentiate and advance computing power. They will hesitate to use INTC for fear of falling behind. INTC won't be ready for any production for a few years. TSMC ecosystem is hard to beat and organizes lots of various suppliers with precision. Time will tell if this article ages well or not. Thanks for the overview though.
Chetan Woodun profile picture
@jterrion Thanks for commenting & you are right - there was delay in Intel going for lithography.
However, as I also mentioned, this decision by Intel should stimulate others like TSM and Samsung to grow foundry activities in the U.S.
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