Semiconductor ETFs Rise Ahead of Intel Earnings

Semiconductor exchange-traded funds have climbed more than 25% this year as investors await Intel’s second-quarter earnings, due after the market close. Intel’s shares have gained about 178% year-to-date but have fallen roughly 28% this month amid investor concern over valuation.

The rally in semiconductor funds has been driven by demand for server processors used in artificial intelligence workloads, lifting expectations for Intel’s data-center business. Intel’s quarterly report will indicate whether growth in its data-center and AI segments can offset slower demand in its client computing group, which includes PC chips.

Analysts project Intel’s data-center and AI revenue rose about 37.8% to $5.4 billion for the quarter, while its client computing unit is seen increasing about 1.7% to near $8 billion.

Intel’s shares trade at roughly 74 times projected earnings, compared with a longer-term average near 22 times. That valuation multiple has been cited as a factor in the stock’s pullback since June despite large year-to-date gains.

KeyBanc Capital Markets projects Intel’s server CPU unit shipments will grow 25% to 30%, citing expanded manufacturing capacity and rising demand from AI infrastructure. Susquehanna points to rising memory prices that have prompted PC makers to trim orders for entry-level and midrange laptops, a trend expected to weaken client-side demand later in the year.

Performance across semiconductor ETFs has varied by strategy. Through July 22, a modified-cap-weighted semiconductor ETF returned about 84.7% year-to-date, a market-cap-weighted semiconductor ETF returned roughly 63%, an AI and next-generation software fund rose about 56.7%, and a technology ETF that spreads exposure evenly across 35 names gained about 26.5%. Over the past month those funds have declined, with drops ranging from about 9.8% to 15.2%.

Funds also differ in how much exposure they give to Intel. One technology ETF holds Intel at about 6.14% of its portfolio, the modified-cap semiconductor fund holds roughly 5.37%, and the AI and next-gen software fund includes Intel at about 4.06%. The market-cap-weighted semiconductor fund does not list Intel among its top 10 holdings.

The four ETFs vary in size and cost. The market-cap-weighted semiconductor ETF has about $70.4 billion in assets with a 0.35% expense ratio, the modified-cap fund holds about $45.8 billion with a 0.34% fee, the technology ETF has about $2.2 billion and a 0.35% fee, and the AI and next-gen software fund has roughly $1.2 billion and a 0.56% fee.

Intel’s earnings report after the close will show whether data-center and AI revenue can counter pressure from rising memory prices and softer consumer PC demand in the client computing business.