AI is causing a frenzy, with US semiconductor ETFs skyrocketing in the first quarter

With the expectation of a soft landing in the US economy and the fervent pursuit of AI, global stock markets have entered a "crazy" mode in the first quarter of this year, with the most dazzling performance coming from the semiconductor ETF.

The MSCI Global Stock Index hit new highs in March, rising 7.7% year-to-date, the largest increase since 2019. The S&P 500 Index accumulated a 10.16% increase in the first quarter, the strongest quarterly gain since 2019, having hit a new closing high 22 times this year. The STOXX Europe 600 Index has risen by about 7%, marking two consecutive quarters of gains.

Under the wave of AI, the VanEck Semiconductor ETF (SMH) has surged by 28.5%, potentially achieving the largest quarterly gain since the first quarter of 2023. The Philadelphia Semiconductor Index and the Semiconductor Industry ETF have risen by approximately 17.5% and 17.7% respectively in the first quarter.

NVIDIA, which accounts for a quarter of the weight in the VanEck Semiconductor ETF, led the first quarter with an increase of 82%, driven by its advanced AI chips and powerful software platform CUDA, increasing its market value by over $1 trillion. Micron Technology benefited from the surge in storage demand under the AI boom, ranking second in terms of increase, with a nearly 40% increase year-to-date. TSMC, the second largest holding in the VanEck Semiconductor ETF, has also risen by over 30% since the beginning of 2024.

Ken Mahoney, President of Mahoney Asset Management, believes that there is no sign of slowing demand for the semiconductor industry from AI, and the upward trend of semiconductor stocks will continue:

Everyone realizes that this is not just a short-lived prosperity for a few quarters. When all companies get the hardware they want and the chips they need, this could be a multi-year expansion.

Although the surge in AI led by NVIDIA has propelled the industry towards another profitable quarter, this is far from the only theme driving the rise in SMH. Hendi Susanto, Portfolio Manager and Technical Analyst at Gabelli Funds, pointed out that expectations for a recovery in areas such as memory chips, PCs, and smartphones have also driven the semiconductor sector's rise.

A report released on Thursday by market research firm Counterpoint Research shows that after more than two years of decline, global smartphone shipments are expected to rebound by 3% in 2024 The shipment volume of high-end smartphones is expected to grow by 17%, and the popularity of artificial intelligence and foldable devices will trigger replacement demand.

In the first quarter of 2024, the upward trend driven by technology stocks spread globally, with European and Japanese stocks outperforming the United States. The performance of the UK's FTSE 100 Index, Germany's DAX Index, France's CAC 40 Index, Spain's Ibex 35 Index, and Japan's Nikkei 225 Index all surpassed the S&P 500 Index.

Among them, the performance of the Japanese stock market in the first quarter of this year was particularly eye-catching in major markets, as investors are optimistic about its economic prospects. Boosted by the rise in chip-related stock prices, the Japanese TOPIX Index rose by over 16.2%, steadily approaching historical highs.

However, UBS strategist Andrew Garthwaite warned that the rapid rise in semiconductor stock prices is sending a warning signal, and business models like artificial intelligence may bring risks of extreme valuations.

At the same time, although the semiconductor industry as a whole has shown strong performance, not all semiconductor companies benefit from AI-related trading and investment themes. There are 7 constituent stocks in the VanEck Semiconductor ETF (SMH) expected to incur losses in the first quarter, indicating performance divergence within the industry