A structured note linked to SOXX may offer defined upside participation and a specified level of downside protection, subject to the note’s terms. Investors may still lose some or all of their principal and are exposed to the issuer’s credit risk.
SOXX: A Single Ticker Snapshot of the AI Boom
If you want to understand the artificial intelligence boom in a single ticker, look at (SOXX), the iShares Semiconductor ETF that holds the leading chip companies. SOXX finished 2025 up 40 percent and by late June of this year, it had gained more than 108%, roughly twelve times the return of the S&P 500 over the same stretch.
Why Chips Are the Picks and Shovels of AI
Every AI model in the world, whether built in Silicon Valley or Shanghai, runs on chips. Hyperscaler capital spending is forecast to exceed $750 billion in 2026, with three quarters of it directed at AI infrastructure, and semiconductor makers are the direct beneficiaries. Chips are the picks and shovels of this gold rush.
The Complication: Cheap AI Models from China
But recently the story got complicated. Chinese firms released powerful AI models that anyone can download and customize for free, models competitive with expensive American systems on several benchmarks. That raises an uncomfortable question: if world class AI becomes nearly free, does the massive spending on chips and data centers still make sense? The market flinched, and several prominent tech and AI stocks sold off on the news.
Why Valuations and Volatility Are a Real Risk Now
With SOXX trading at a forward earnings multiple of roughly 42, and you have a sector where the upside remains enormous but the air is getting thin. History shows the risk clearly: when the broad market fell 19% in 2022, SOXX dropped 35%.
Using a Structured Note to Manage the Risk
So what do you do to mitigate the risk of the semiconductor bet? One solution we have been using is a structured note. We had one of the major banks create a five-year note tracking SOXX. The structure is point to point: the bank compares where SOXX stands at maturity to where it started, and you capture that gain up to a cap of one hundred twenty percent over five years. Your maximum downside is just five percent. You stay invested in the sector’s growth, but your worst case is defined in advance.
After a historic run, that is a trade worth considering: keeping a seat at the table while taking most of your chips off it.
Singer Wealth Advisors is a registered investment advisory firm. Discuss with your financial/tax professionals before investing. Investing involves risk. Past performance does not guarantee future results. Material provided for informational purposes only. Investors may still lose some or all of their principal and are exposed to the issuer’s credit risk.
FAQ Section
What is SOXX?
SOXX is the iShares Semiconductor ETF, which holds shares of leading chip companies and is often used as a benchmark for the semiconductor sector’s performance during the AI boom.
Why are cheap AI models from China a risk for semiconductor stocks?
If powerful, low-cost AI models reduce the need for massive ongoing investment in chips and data centers, it could challenge the assumption that AI-driven spending on semiconductors will continue growing at its current pace.
How much more volatile is the semiconductor sector than the broader market?
Historically, semiconductor stocks have shown larger swings than the broader market in both directions; for example, during the 2022 downturn, semiconductor stocks fell substantially more than the S&P 500.
How can a structured note help manage semiconductor sector risk?
A structured note tracking a semiconductor index can offer defined upside participation up to a stated cap, along with a defined maximum downside, allowing an investor to stay exposed to the sector while limiting potential losses.
Keith Singer
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