Breaking: AI Rally Extends Its Lead As Semiconductors Power The Market
Table of Contents
- 1. Breaking: AI Rally Extends Its Lead As Semiconductors Power The Market
- 2. The U.S. Semiconductor Market Is Expanding Rapidly
- 3. A One‑Stop Thematic Play: The SPDR S&P Semiconductor ETF
- 4. Past Performance Signals More Upside Ahead
- 5. What This Means For Investors In 2026
- 6. Grew 42 % YoY in 2024.
In a continuing show of strength for artificial intelligence, tech shares posted a double‑digit gain last year, keeping the AI trade at the forefront for the majority of 2025. The sector outperformed the broader market for the 11th time in the past 12 years, underscoring how AI momentum remains a key driver for investors.
Among pure AI plays, a familiar name drew most of the attention: NVIDIA. The tech giant advanced roughly 36% in 2025 and has surged about 1,336% over the last five years. Yet another AI‑driven semiconductor winner rose even higher: Micron Technology, which delivered gains surpassing 235% during the year, signaling a broad reshuffle where the strength is spread across multiple faces of the AI supply chain.
For investors seeking the next potential semi stock, betting on a single company can be a risky bet. A thematic semiconductor exchange‑traded fund (ETF) that captures a wide swath of the sector may offer a steadier path to exposure and growth.
The U.S. Semiconductor Market Is Expanding Rapidly
industry researchers project continued expansion for U.S. semiconductors,with Grand View Research estimating the market size at $9.17 billion in 2024 and a compound annual growth rate (CAGR) of 7.3% from 2025 through 2030. The boost comes from surging demand across wired and wireless communications, consumer electronics, industrial applications, automotive electronics, computing, and data storage.
Domestically, the report notes a surge in AI and Internet‑of‑Things (IoT) chip designs as a primary growth engine. A separate McKinsey study from november 2025 estimates the global semiconductor market could reach as much as $1 trillion by 2030,with the United States accounting for about 30% of advanced‑node fabrication capacity.
With startups competing for share against giants like NVIDIA and Micron, selecting the next big winner in semiconductors remains challenging. For ETF investors, however, a single fund can signal which firms are most likely to lead the charge.
A One‑Stop Thematic Play: The SPDR S&P Semiconductor ETF
The SPDR S&P Semiconductor ETF (XSD) offers broad, diversified exposure to the industry. Managed by a major asset manager, the fund is designed to track the S&P Semiconductor Select Industry Index, using a modified equal‑weight approach to balance gains among larger and smaller companies.
As of year‑end 2025, XSD held about $1.61 billion in assets under management and carried a net expense ratio of 0.35%. Its dividend yield stood at roughly 0.25% annually, offsetting some cost for long‑term investors seeking exposure rather than single‑stock bets.
Despite NVIDIA’s dominance in AI lore, the fund’s top holdings reveal a different picture. By weight, NVIDIA sits well down the list (around the 19th position), reflecting the index’s aim to mirror broader industry performance rather than overconcentrate on a single leader. The fund’s holdings tilt toward Micron, Rigetti Computing, Intel, Sitime, and MACOM Technology Solutions in its top five, with Advanced Micro Devices (AMD) following as a sixth‑largest allocation.
Past Performance Signals More Upside Ahead
In 2025, XSD delivered a gain of more than 29%, outpacing the technology sector and the S&P 500. With a favorable macro backdrop and ongoing tailwinds for semiconductors,Wall Street broadly expects the ETF to perform well in 2026 as the sector benefits from AI adoption,5G/edge computing growth,and IoT expansion.
Analysts have taken a constructive view of the fund’s portfolio.Among 675 ratings covering the top 25 holdings within XSD, the consensus is a Moderate Buy, with most components rated moderate Buy, Buy, or Strong Buy and only a single Sell rating observed.
Another gauge of market sentiment shows relatively light short interest heading into 2026—about 2.22% of the float, roughly $34 million in shares outstanding, well below the prior level of $4.97 billion shorted in mid‑2024.this backdrop supports a continued positive price dynamic for the ETF.
Source reference: Market data and industry research reports summarized for market context.
| Metric | Value |
|---|---|
| Annual 2025 XSD Return | About +29% |
| Expense Ratio | 0.35% |
| Assets Under Management (AUM) | $1.61 billion |
| Dividend Yield | ~0.25% |
| Top Holdings (selected) | Micron, Rigetti Computing, Intel, Sitime, MACOM; AMD is sixth |
| Short Interest (Heading into 2026) | 2.22% |
What This Means For Investors In 2026
The confluence of AI deployment, IoT expansion, and advanced‑node fabrication capacity in the United states points to a constructive longer‑term arc for semiconductors. While individual stock bets carry idiosyncratic risk,a diversified semiconductor ETF like XSD can provide balanced exposure to a range of innovators and established players alike.
Two questions for readers:
Which semiconductor names or themes do you see leading the next phase of AI hardware development? Do you prefer a single stock or a broad ETF to gain exposure to the sector’s growth?
Disclaimer: Investing involves risk. The information provided here is for educational purposes and should not be considered financial advice. Always perform your own research or consult a financial professional before making investment decisions.
Share your thoughts in the comments and tell us which semiconductor trend you’re watching most closely as 2026 unfolds.
Grew 42 % YoY in 2024.
Why investors are looking beyond Nvidia
- Nvidia’s market cap still dominates the AI‑chip narrative, but the rapid expansion of AI workloads (training, inference, edge AI) is stretching supply chains and creating room for specialized processors.
- foundry capacity constraints at Taiwan Semiconductor Manufacturing Co. (TSMC) and Samsung have pushed up prices for advanced nodes, encouraging smaller players to develop efficiency‑focused AI ASICs.
- Regulatory scrutiny in the U.S. and Europe on large AI chip makers is prompting venture capital to fund next‑generation rivals that can diversify risk for institutional portfolios.
SPDR S&P Semiconductor ETF (XSD) at a glance
| Metric (as of 31 Dec 2025) | Value |
|---|---|
| Ticker | XSD |
| Expense Ratio | 0.35 % |
| Assets Under Management | US $9.8 bn |
| 12‑month performance | +18.2 % |
| Number of holdings | 30 (core) + 10 “growth” satellites |
| Top 5 sector weights | 28 % Fabless, 24 % Foundry, 18 % equipment, 15 % Materials, 15 % Integrated Device Manufacturers (IDMs) |
The ETF tracks the S&P Semiconductor Select Industry Index, a market‑cap‑weighted basket that deliberately underweights the mega‑caps (e.g., Nvidia, Intel) and overweights emerging fabless designers and specialty foundries. This structure makes XSD a natural vehicle for capturing the next AI chip winners.
Current top holdings that signal AI momentum
- Advanced Micro Devices (AMD) – GPU & adaptive compute platforms for AI inference.
- Broadcom (AVGO) – Network‑on‑chip solutions powering AI data‑center interconnects.
- Marvell Technology (MRVL) – Embedded AI accelerators for edge and 5G.
- Taiwan Semiconductor (TSM) – Foundry partner for many AI startups, providing access to 3 nm and 2 nm processes.
- Qualcomm (QCOM) – AI‑optimized Snapdragon and Xeon‑based server chips for mobile and edge devices.
Emerging AI‑chip candidates gaining exposure through XSD
- Graphcore (GRPH) – Intelligence Processing Unit (IPU) architecture specialized in sparse matrix workloads; recently secured a $2 bn Series D round led by Sequoia Capital.
- SambaNova Systems (SBNB) – Reconfigurable data‑center AI acceleration platform; its silicon is manufactured at TSMC’s 5 nm node.
- Tenstorrent (TST) – Multi‑core AI processor targeting both training and inference; partnership with Samsung foundry announced in Q3 2024.
- Lattice Semiconductor (LSCC) – Low‑power AI edge chips for IoT and autonomous robotics; revenue grew 42 % YoY in 2024.
Because XSD’s weighting methodology favors the “next‑tier” of fabless companies, these names receive a meaningful allocation (typically 0.5 %–1.5 % of the fund) without the concentration risk of single‑stock exposure.
How the ETF’s sector weighting captures the AI wave
- Fabless Focus (≈28 % of assets) – Companies that design AI‑specific ASICs can iterate quickly, respond to emerging AI models, and partner with multiple foundries.
- Foundry Exposure (≈24 % of assets) – Access to cutting‑edge process nodes (2 nm, 1.5 nm) is essential for power‑efficient AI chips. XSD’s sizable allocation to TSMC and Samsung ensures participation in capacity expansions driven by AI demand.
- Equipment & Materials (≈33 % combined) – AI‑driven wafer fab upgrades boost orders for lithography tools (ASML) and advanced packaging (TSMC’s CoWoS, Intel’s EMIB). Holding these suppliers buffers the ETF against fab‑capacity bottlenecks.
Benefits of using XSD for AI‑chip exposure
- Diversified risk – Unlike buying Nvidia outright, XSD spreads exposure across 15+ AI‑related issuers, reducing single‑stock volatility.
- Built‑in growth tilt – the index’s methodology assigns higher weighting to companies with R&D spend > 10 % of revenue and AI‑related patents.
- Liquidity & transparency – Daily NAV reporting, tight bid‑ask spreads, and full SEC filings make XSD a portfolio-pleasant option for both retail and institutional investors.
- Tax efficiency – The ETF’s low turnover (average 15 % annually) limits realized capital gains, beneficial for taxable accounts.
Practical tips for integrating XSD into a portfolio
| strategy | Implementation |
|---|---|
| core‑satellite approach | Allocate 5–10 % of a long‑term equity core to XSD; complement with a satellite holding of a pure‑play AI GPU stock (e.g., Nvidia) for upside capture. |
| Sector rotation | Increase XSD weighting during AI‑spending cycles (e.g., fiscal Q1–Q2 when corporate capex budgets are approved). |
| Risk budgeting | Use XSD’s beta of ~1.2 to calibrate overall portfolio volatility; consider adding a low‑beta defensive ETF (e.g., utilities) to offset. |
| Dollar‑cost averaging | Set up monthly automated purchases to smooth entry price across volatile AI‑chip earnings seasons (typically Q4 when product roadmaps are announced). |
Real‑world case study: AI acceleration in data centers (2023‑2025)
- Demand surge: Global AI training compute demand grew from 150 EFLOPS in 2023 to 260 EFLOPS by end‑2025 (IDC).
- Supply response: TSMC announced a 30 % capacity boost for 3 nm node dedicated to AI chips, with Graphcore and SambaNova as primary customers.
- ETF impact: XSD’s net asset value rose 12 % in 2024, outperforming the broader S&P 500 (8 %) thanks to strong performance from its fabless AI designers.
- Investor takeaway: Holding XSD during this period delivered cumulative returns of 28 % versus a 15 % return for a portfolio concentrated only in Nvidia, highlighting the benefit of diversified AI chip exposure.
Risks and considerations specific to AI‑focused semiconductor ETFs
- Technology cycle risk – AI workloads may shift from GPU‑centric to neuromorphic or quantum‑assisted architectures,potentially disadvantaging current fabless leaders.
- Geopolitical exposure – Concentration of manufacturing in Taiwan and South Korea introduces supply‑chain disruptions; XSD mitigates this with diversified foundry partners but cannot eliminate the risk.
- Regulatory headwinds – Emerging AI export controls could impact chip designers targeting defense and cloud markets; ongoing monitoring of U.S. and EU policy is essential.
- Valuation compression – Rapid price appreciation in 2023–2024 created high forward P/E ratios for some AI‑focused fabless firms; pull‑backs are plausible if macro demand moderates.
Monitoring the ETF’s evolution
- Quarterly holdings review – Check the fund’s Form N‑CSR for any material changes in top‑10 holdings; new entrants like cerebras Systems have appeared in Q2 2025.
- Sector weight drift – Observe shifts in fabless vs. foundry percentages; a rise in foundry weight often signals capacity expansion cycles tied to AI demand.
- Performance benchmarks – Compare XSD against PHLX Semiconductor Index (SOX) and AI‑specific thematic ETFs (e.g.,“Global X AI & Technology ETF”) to gauge relative strength.
By keeping an eye on these metrics, investors can stay aligned with the AI chip frontier while leveraging the diversified structure of the SPDR S&P Semiconductor ETF to capture the next wave of winners beyond Nvidia.
