Abstract Circuit

Hardware Powerhouse: Semiconductors Revisited

Hardware Powerhouse: Semiconductors Revisited

  • By Mark Marex, Product Development Specialist

The PHLX Semiconductor Index (SOX) was launched on December 1, 1993, and has enjoyed a storied history, becoming one of the best-known and most widely-tracked subsector indexes. During the 2010s, SOX returned 513% on a total return basis, besting even the Nasdaq-100 Index which soared 426%. Its constituent basket consists of the top 30 securities by market capitalization in the semiconductor industry, and its relatively straightforward methodology has a modified market cap-weighting with a quarterly rebalancing schedule. Constituents need not be listed on The Nasdaq Stock Market (NYSE-listed names are also permitted), but do need to meet minimum requirements for market cap ($100MM) and liquidity (1.5MM shares traded in each of the last 6 months). Let’s review how SOX has performed in the recent past and what its components look like today.

Current Composition

Semiconductors Revisited Chart 1

Of the 30 constituents in SOX, the top 15 represented 80% of the index weight as of the end of 1Q’20. The top 10 names represented approximately 63%, while the top 5 represented 42%. The largest of these was NVIDIA Corporation (NVDA), whose outsized weighting was a function of its 12% positive return YTD. Every other constituent’s YTD return was negative, with an average loss of almost 22%. The second largest constituent – Intel (INTC) – was considerably larger by market capitalization ($231Bn vs. NVDA’s $161Bn), but its quarterly return was -9.6%. Since they both began the period with weights capped at 8%, NVDA’s performance differential of 22% drove its weighting proportionally higher.

In terms of market capitalization for the overall group, the average was $46.7Bn, while the weighted average was $83.3Bn. The median was $17.8Bn. For the same group of companies, the average market cap was $33.7Bn on March 31, 2017, with a median of $14.7Bn.1 Thus on average, market caps grew by 38%, while the median increased by 22%, over this three-year period. NVDA’s increased by 151%, second only to Advanced Micro Device (AMD)’s 289% increase. Of these 30 companies, only 5 registered a decrease in market cap over the entire 3-year period, despite the material pullbacks observed across the financial markets in 1Q’20.

Semiconductors Revisited Chart 2

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