Even After 40 Years, This Is Still One of the Best Bets in Tech

Editor's note: Semiconductors have powered every major technological breakthrough for decades. And even through the recent market dip, chip stocks performed well. In this issue, Joe Austin of our corporate affiliate Chaikin Analytics explains why this decades-long growth story is far from over – and how the Power Gauge is highlighting opportunities in one of the market's strongest sectors...

Behind some of the greatest innovations in modern technology, you'll find semiconductors...

When Intel (INTC) first commercialized dynamic random-access memory ("DRAM") back in 1970, it replaced entire rooms full of memory hardware with a single chip.

That small chip became the foundation for every computer, phone, and server built since then. And semiconductors have kept evolving...

When Texas Instruments (TXN) invented the digital signal processor in 1978, it replaced a board full of analog components with one programmable chip. That made modern wireless communications possible – leading to the mobile phones we can't live without today.

Nvidia (NVDA) released its first graphics processing unit ("GPU") back in 1999. It was designed to handle the heavy graphics demands of video games. That freed up the central processing unit ("CPU") to do everything else.

But in 2011, Alphabet's (GOOGL) Google used Nvidia GPUs to create deep neural networks.

That marked a breakthrough in deep learning... and paved the way for AI to take center stage a little more than a decade later.

By now, all the major AI models we hear about – like ChatGPT, Gemini, and Claude – run on Nvidia chips.

When I started covering semiconductors in 1985, worldwide revenues for the entire industry were around $29 billion. Today, that's roughly what Nvidia earns in net income every eight weeks.

Semiconductors have been growing in importance for decades. And the companies behind that growth have been some of the best investments of my career.

With all the volatility in the markets we've seen this year, semiconductor stocks continue to shine.

And for investors, this hunting ground is as rich as ever...

The Numbers Tell the Story

Technology consultant Gartner projects semiconductor revenues will hit more than $1.3 trillion in 2026. That's a 64% jump year over year. And it's the fastest growth rate in two decades.

Memory chips make up the largest chunk of the industry. In 2026, Gartner expects revenue to soar 193% year over year, with nearly $400 billion in new sales.

According to Gartner's projections, the rest of the industry (non-memory) will grow 17% year over year. That would add another roughly $100 billion in revenue.

Of course, the big driver behind all of this is AI...

Gartner expects AI semiconductors to account for 30% of total semiconductor revenue this year. And the big tech giants are expected to increase their AI infrastructure spending by more than 50%.

But that's not all. Other industries rely more and more on the chip market as time goes on.

For example, consider the automotive industry...

The automotive semiconductor market hit about $100 billion in 2025. And it's expected to hit nearly $149 billion by 2031.

Plus, if self-driving cars take off, that growth gets a massive boost. Big Four accounting firm PwC projects that fully autonomous vehicles will need 5 times more chips per vehicle – at 10 times the cost.

Health care is another great opportunity...

The health care semiconductor market is expected to grow from less than $67 billion in 2026 to more than $107 billion by 2031. That's a compound annual growth rate of 10.4%.

Industrial automation is another big driver...

This market came in at around $215 billion last year. And it's expected to grow to more than $533 billion by 2035. Smart factories, robotics, and renewable energy are helping drive this growth.

Put simply, semiconductors have some major, long-term tailwinds behind them.

And the Power Gauge currently sees big opportunities in semiconductors, too...

We use the Power Gauge at Chaikin Analytics for analyzing the market. It gathers investment fundamentals and technicals into a simple rating of "bullish," "neutral," or "bearish."

In our system, we can easily track the space with the State Street SPDR S&P Semiconductor Fund (XSD). Out of 21 market subsector funds, XSD is currently ranked No. 2. And it gets a "very bullish" rating.

Digging deeper, XSD also holds plenty of strong stocks. Take a look...

As you can see, 33 stocks in XSD earn "bullish" or better ratings. That compares with eight in "neutral" territory... and only two that are "bearish" or worse.

So if you're looking for good ideas in uncertain times, semiconductor stocks are a great place to start. The Power Gauge loves the space right now.

For more than 40 years, this has been a winning group for me.

The innovation never stops – and the end markets keep expanding. I don't see either of those trends slowing down anytime soon.

Good investing,

Joe Austin

Editor's note: The same AI boom that created today's biggest winners may now be working against them. New data shows key parts of the build-out are stalling – and two veteran investors say it could hit the biggest tech names first. But this shift may also open the door to a lesser-known opportunity... tied to AI's next phase.