Semiconductors are soaring. Here’s why traders should pay attention.

Amid all the AI hype, the semiconductor industry has been getting a lot of attention – and for good reason. Semiconductors form the foundation for chips, like CPUs and GPUs, that are critical to powering complex computations, running data centres and enabling AI applications. Thanks to the recent AI boom, the global semiconductor industry is expected to reach a record US$975 billion in sales this year alone.

Buy-and-hold investors participated in significant gains. The PHLX Semiconductor Index, better known as SOX, climbed more than 173 per cent in the 12 months ending June 22, 2026, as demand for AI infrastructure and data centres continued to surge.

Historically, though, semiconductors have been among the market’s most cyclical and volatile sectors, making them a favourite among active traders. The question now is whether AI has changed that dynamic.

For decades, the semiconductor industry followed a familiar boom-and-bust pattern. Rising demand for electronics such as smartphones, computers and gaming devices encouraged manufacturers to ramp up production and invest in new fabrication plants. As demand increased, so did prices, profits and stock valuations.

For decades, the semiconductor industry followed a familiar boom-and-bust pattern. Rising demand for electronics such as smartphones, computers and gaming devices encouraged manufacturers to ramp up production and invest in new fabrication plants. As demand increased, so did prices, profits and stock valuations.

However, demand would eventually cool. New production capacity would come online just as customers scaled back orders, creating excess supply and putting pressure on prices and earnings. That resulted in a highly cyclical industry characterized by periods of rapid growth and sharp slowdowns.

AI may be changing these patterns. Unlike smartphones or PCs, which are tied largely to consumer spending cycles, AI infrastructure spending is being driven by technology companies racing to build increasingly powerful models and data centres. That’s created a more steady source of demand for semiconductors.

Some analysts call this shift in semiconductor demand the “giga cycle,” a period of long-term structural growth driven by the widespread adoption of AI rather than traditional consumer demand. You might think then that a longer growth runway would make semiconductor stocks less volatile. In reality, as you can see from the chart below, which compares volatility between the SOX and the S&P 500, the opposite may be true. In fact, semiconductor stocks have become even more volatile when compared the S&P 500 as of late.

One reason for the higher volatility is because the industry is becoming increasingly divided between AI winners and everyone else. While demand for AI chips continues to surge, other semiconductor markets, including smartphones, PCs and automotive applications, have experienced slower growth. According to Deloitt, high-value AI chips are expected to account for roughly half of semiconductor industry revenue this year despite representing less than 0.2% of total unit volumes.

That kind of concentration can amplify volatility. Semiconductor stocks aren’t just responding solely to traditional supply-and-demand cycles, they’re also reacting to AI infrastructure spending plans, data-centre buildouts, earnings reports from major chipmakers and the pace of enterprise AI adoption. A single announcement from a company like Nvidia can influence sentiment across the entire sector.

The result is a market where long-term growth expectations remain strong, but short-term swings can still be significant. As you can see, the SOX is considerably more volatile than the S&P 500, even as AI demand has strengthened.

One of the big risks to semiconductor stocks is expectations, which have become exceptionally high. We know that AI will require more chips, more computing power and more data-centre infrastructure, but no one’s sure how that demand will materialize or whether current valuations already reflect that growth. (Bubble anyone?)

That’s a key reason why the sector can experience pullbacks even when its long-term outlook remains positive. Similar dynamics have played out in other high-growth themes, from gold to uranium, where strong fundamentals have supported a bullish long-term narrative but haven’t prevented significant short-term swings.

Semiconductor stocks also tend to amplify broader market moves. When markets rally, semiconductor shares often outperform. When markets pull back, those same stocks can experience larger declines. For active traders, that can create tactical trading setups. The long-term AI story may provide a supportive backdrop, but shorter-term performance is often driven by earnings reports, spending announcements, changes in market sentiment and broader market movements.

Then there are supply constraints and geopolitical developments, which can add another layer of uncertainty. Fabrication plants can take years and billions of dollars to build, making it difficult for supply to quickly respond to changes in demand. Export controls, trade restrictions and disruptions in key manufacturing hubs such as Taiwan and South Korea can also influence supply chains and investor sentiment.
 
Ultimately, the gigacycle may be extending the industry’s growth potential, but it hasn’t eliminated the ups and downs. Instead, it’s created a new set of catalysts capable of driving significant short-term moves.

If you’re looking for sector-level exposure to semiconductors, leveraged bull and bear ETFs offer a way to gain tactical exposure to market trends in either direction.

BetaPro offers two options: the BetaPro 3x Semiconductor Daily Leveraged Bull Alternative ETF (SOXL) and the BetaPro -3x Semiconductor Daily Leveraged Bear Alternative ETF (SOXS). Each ETF is designed to deliver either three times the daily move of the NYSE Semiconductor Index or three times the inverse of that daily performance.

Sophisticated daily traders can use these products as tactical tools around expected momentum or event-driven news such as earnings reports, AI infrastructure announcements, regulatory developments or shifts in investor sentiment. For instance, if a major chipmaker reports weaker-than-expected results and traders believe that could weigh on the broader semiconductor sector, they could use SOXS to express a bearish view.

There’s no question AI is reshaping the semiconductor market, but rising stocks may continue to offer an exciting destination for active traders. Before trading leveraged ETFs, though, you need to have a good understanding of these new market dynamics and a clear view of what catalyst could move the sector next. In a market where expectations can shift overnight, short-term volatility remains a powerful force.
 
Whether it’s an earnings report, an AI announcement, a policy change or a shift in investor sentiment, sophisticated active traders should expect plenty of movement ahead. The giga cycle may be changing where the sector is headed, but it hasn’t made the journey any smoother.

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Published July 28, 2026