Here's Why the Direxion Daily Semiconductor Bull 3X ETF Soared Today (Hint: It's Alphabet and Intel Related)
Key Points
Alphabet's Google recently placed a large order with Intel, as AI-relateds spending keeps accelerating.
The order is a sign that technology providers, like Taiwan Semiconductor, are struggling to keep up with end-market demand.
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The Direxion Daily Semiconductor Bull 3X ETF (NYSEMKT: SOXL) is an ETF that uses leverage to seek to generate 300% of the performance of the NYSE Semiconductor Index. As such, when the semiconductor index does well, you can expect an inordinate return from this ETF, and today's near 21% jump by 12 pm comes on a big day for the sector.
Why semiconductor stocks surged today
The move is a combination of a bounce-back following Friday's bloodbath and fundamental news supporting the thesis that we are merely in the early innings of a multi-year expansion in artificial intelligence (AI) related semiconductor spending.
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Most of the attention has focused on Nvidia (the largest holding in the ETF) and its graphics processing units (GPUs), which are ideal for the massive amounts of simultaneous computation required in AI. Intel (a top-10 holding in the ETF) management has been vocal about the growing importance of central processing units (CPUs) in enabling autonomous agents to perform AI functions. CPUs are Intel's core strength
In addition, Alphabet's Google has proprietary tensor processing units (TPUs) that perform massive amounts of matrix calculations for AI, and today's big news is Google's order for 3 million TPUs to be manufactured at Intel's foundry, as Taiwan Semiconductor (another ETF holding) struggles to meet demand.
Image source: Getty Images.
What it means to investors
The news is another demonstration of the growth in underlying demand for AI and, in turn, investment in semiconductors and AI infrastructure. It was enough to send Intel and other semiconductor stocks soaring today, and that's great news for the ETF.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
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