Invesco Semiconductors ETF (PSI)

Semiconductors are the wiring of modern commerce. Every smartphone, server, car, airplane, and piece of industrial equipment runs on chips. The Invesco Semiconductors ETF (PSI) bets that this sector will continue to grow in importance and that investors can profit by holding a basket of the firms that design, manufacture, and equip the chip industry.

What PSI holds

The fund’s portfolio spans the entire semiconductor supply chain. It includes pure-play chip manufacturers like Taiwan Semiconductor Manufacturing Company and Samsung, which make chips for other companies. It holds fabless design firms like Nvidia and AMD, which design chips but outsource manufacturing. It owns equipment makers like ASML and Applied Materials, which build the machines used to manufacture chips. It also includes component suppliers and distributors. By holding the whole ecosystem, PSI avoids betting everything on whether one part of the chain will thrive—it captures growth wherever it happens in the sector.

The largest holdings tend to be the most valuable and most liquid names: Nvidia, ASML, Taiwan Semiconductor, Intel, Broadcom, Qualcomm, and similar. These represent the bulk of the sector’s market value and generate the bulk of its profits. Smaller but important players in the fund might include Marvell Technology, Microchip, SanDisk, and niche players in substrate or testing.

Concentration and cyclicality

A sector fund is inherently concentrated compared to the broad market. PSI does not hold financials, healthcare, energy, consumer staples, or any other sector—it is all chips, all the time. This is a choice that magnifies both gains and losses. In years when chip demand surges, semiconductor stocks rocket and PSI outpaces the broad market. In years when demand falters—as it did in the early 2020s after a pandemic-driven inventory build—chip stocks crater and PSI underperforms sharply.

The semiconductor industry is also cyclical. Demand for chips follows the business cycle: companies and consumers buy more electronics when economies are strong, fewer when they slow. Chip makers and equipment suppliers often trade on forward expectations of demand, which means the stocks can swing wildly on revised guidance about future capacity or shipments. ASML or TSMC might trade down 30 percent in a month on news that cloud spending is weaker than expected, even if the firm itself is profitable and the underlying chip demand remains strong.

Technological risk and competitive moats

Semiconductor companies are science-intensive and capital-intensive. Staying competitive requires ceaseless investment in research and manufacturing capacity. A company that falls behind in process technology—the ability to etch ever-smaller transistors onto silicon—can lose market share quickly. PSI is therefore exposed to the risk that large, well-funded competitors will leapfrog the current leaders. Intel dominated chips for decades, but stumbled in recent years and ceded ground to TSMC and Samsung. That story is baked into chip-industry returns.

The geopolitical dimension is real. Taiwan is the manufacturing hub for advanced chips worldwide, and U.S.-China tensions, export controls, and the threat of disruption to cross-strait trade have all weighed on the sector. PSI holds many Taiwan-focused and China-exposed companies, so regulatory or military shocks in that region carry direct portfolio risk. Firms like ASML supply equipment only to approved customers due to U.S. export controls, which constrains their sales and makes them subjects of geopolitical negotiation.

Demand drivers and the long-term case

Against these cyclical and geopolitical headwinds, demand for semiconductors is structurally positive over the long term. Artificial intelligence, data centers, electric vehicles, robotics, and automation all require more powerful and more specialized chips. Countries worldwide are trying to secure domestic chip capacity to reduce dependence on Taiwan, which has prompted huge capital investment from Intel, Samsung, and new state-backed makers. If any of these trends persist, semiconductor companies will remain central to profit growth across the economy.

How to research PSI

Start with Invesco’s fund fact sheet to see the current allocation, the top holdings, the fund’s geographic exposure, and the expense ratio. Compare PSI’s performance to the Philadelphia Semiconductor Index, which is the benchmark index the fund tracks. Review the sector’s recent earnings and capital spending plans from the top five holdings to understand current momentum. Check whether the fund holds dividend payers—most semis reinvest earnings rather than pay dividends—so income is not a draw. Look at PSI’s P/E multiple and other valuation metrics relative to the broad market and relative to its own history to gauge whether semiconductors are currently expensive. Track industry reports from analyst firms like Gartner or IC Insights on global chip demand and supply. Because this is a concentrated sector bet, consider whether your overall portfolio needs more or less chip exposure depending on your other holdings.