Semiconductor Funds Rated 'Buy' Amid AI Capex Demand

On September 18, 2026, iShares Semiconductor ETF (SMH) and VanEck Semiconductor ETF (SOXX) semiconductor funds maintained 'Buy' ratings. This assessment links directly to AI-driven capital expenditures, which are fueling demand across the technology sector.

The details

AI spending is driving significant capital expenditures, creating demand that directly benefits semiconductor funds such as iShares Semiconductor ETF and VanEck Semiconductor ETF. This trend persists even as interest rates climb and cash yields returns, indicating the compelling nature of AI investment. Data center construction, a critical component of AI infrastructure, continues to attract substantial capital. For example, ON Semiconductor Corporation anticipates its AI data center business will more than double in 2026.

Artificial intelligence is becoming a primary engine of economic activity, with an ecosystem spanning multiple levels. This includes foundational research, hardware development, software platforms, and application deployment. AI-driven semiconductor growth is a core component of this expansion. Specifically, the demand for leading-edge chips and High Bandwidth Memory (HBM) is reshaping data center capital expenditures. HBM, a type of high-performance RAM, is crucial for processing the massive datasets required by advanced AI models, necessitating specialized manufacturing and integration processes within semiconductor production. These components are essential for the computational intensity of AI workloads, which far exceed traditional computing demands.

Investment in AI data centers is projected to reach substantial figures, potentially totaling $50 trillion by 2050. This infrastructure race is influenced by several factors: electricity availability, the supply of advanced semiconductors, and data laws. These elements will collectively determine the geographical distribution of what are being termed the 'factories of the new economy'. The sheer scale of this investment underscores the foundational role semiconductors play in enabling AI capabilities, from training complex models to deploying real-time inference systems.

Why it matters

AI infrastructure is undergoing significant expansion, particularly within the U.S.. The Senate's decision to block the Ratepayer Protection Act occurred amidst this expansion of U.S. data centers. This legislative action has implications for how data center growth, driven by AI, impacts energy markets and consumer costs. The mechanism here involves the increased power consumption of AI data centers, which can strain existing grids and potentially lead to higher energy prices for ratepayers if not managed through regulation or infrastructure upgrades. The blocking of such an act suggests a prioritization of data center expansion over immediate ratepayer protection, reflecting the economic impetus behind AI development.

This surge in AI spending is also projected to influence broader economic indicators. Specifically, AI-driven capital expenditures could contribute to interest rates reaching 4.5%. The mechanism for this involves increased demand for capital to fund AI development and infrastructure, which can push up borrowing costs across the economy. Semiconductors are positioned to benefit first from this spending, as they are the foundational hardware required for all AI computations. This initial benefit stems from the direct and immediate need for specialized chips (like GPUs and AI accelerators) to build and operate AI systems. The semiconductor market is being fundamentally reshaped by AI, impacting U.S. power grids, investment flows, and technology markets. This reshaping extends to the entire supply chain, from raw materials to advanced manufacturing, and influences geopolitical dynamics as nations compete for technological leadership and manufacturing capacity.

Second-order effects of this AI-driven demand include increased competition for skilled labor in semiconductor design and manufacturing, potential supply chain vulnerabilities due to reliance on a few key producers, and heightened environmental concerns related to the energy consumption of massive data centers. The rapid pace of AI development also raises questions about regulatory frameworks, intellectual property, and ethical considerations, as highlighted by discussions around the 'shadow of Terminator' and 'regulation creep' in the AI investment cycle. These broader societal and economic impacts underscore the transformative nature of current AI investments.

What to watch

Future disclosures regarding AI-driven capital expenditures and semiconductor demand will provide further insight into the sustainability and scale of this growth. The performance of companies like ON Semiconductor in their AI data center business for 2026 will serve as a key indicator of market trends and the realization of projected growth. Additionally, monitoring legislative developments, particularly those related to data center energy consumption and infrastructure, will be crucial. The evolving landscape of interest rates in response to capital demand for AI projects will also be a significant economic factor to observe. Finally, the continued development of advanced semiconductor technologies, such as next-generation HBM and specialized AI accelerators, will dictate the pace and direction of AI capabilities and their associated investment cycles.