This Sector's Stratospheric Rise Should Continue

One area of the market looks like a rocket ship heading into orbit...

This boom is nothing new. It was a main driver of stock market returns last year. But it's looking even crazier in 2024...

I'm talking about the rally in the semiconductor sector. These companies are key players in the artificial-intelligence ("AI") boom that's sweeping the investment world.

Semiconductor stocks have been soaring for months. But they kicked into high gear in recent weeks.

Specifically, the sector just staged a 26% run-up in only two months. That's one of the largest rallies we've ever seen. And according to history, a surge like this means the boom isn't over yet.

Let me explain...

The AI revolution of 2023 began with Nvidia (NVDA). Its state-of-the-art graphics processing units ("GPUs") are powering the new frontier of AI.

Companies use clusters of GPUs to train large language models like OpenAI's ChatGPT. This has led to a massive wave of new demand for GPUs (and advanced semiconductors in general).

As expected, that demand has sent shares soaring. NVDA was up 239% last year. And it has nearly doubled again so far in 2024.

The entire sector is soaring, too. We can see this by looking at the Philadelphia Stock Exchange Semiconductor Index ("SOX"). This is the benchmark index for semiconductor stocks. And it recently jumped a staggering 26% in nine weeks. Take a look...

As you can see, these stocks were already soaring last year. But the recent rally is one of the biggest we've seen.

The double-digit jump was the equivalent of a few years of gains for this index... And it happened in barely more than two months.

Plus, similar rallies have happened only 13 other times in the past three decades. So today's setup is rare.

To see what this means going forward, I looked at each new nine-week rally of 26% or more since the index began in 1994. You might expect a slowdown after a rally this big. But history shows the gains should continue...

Semiconductor stocks are notorious for their booms and busts. Still, they've led to an impressive 13% annual return over the past three decades. But you can do better if you buy after setups like today's...

Similar instances led to 9.1% gains in three months, 11.7% gains in six months, and 18.1% gains over the following year. That's darn impressive outperformance. And it shows the power of the trend.

Semiconductor stocks are soaring. That might scare off the investors dreading a reversal. But stocks that move higher tend to keep moving higher – and history shows that's true for this sector, too.

This rocket ship can keep rising... And it's a corner of the market you should consider owning today.

Good investing,

Brett Eversole

Further Reading

Many industries rely on semiconductors today. Without them, new technological advancements wouldn't be possible. One powerful investing tool has found a way to take advantage of this red-hot corner of the market... Read more here.

The big names in tech are going "all in" on the AI chip market. Billions of dollars are already flowing into this space. That has helped fuel the current stock market boom. And it's a reason to be bullish in the years to come... Learn more here.