Behind some of the greatest innovations in modern technology, you'll find semiconductors...
When Intel (INTC) first commercialized DRAM (which stands for "dynamic random-access memory") 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.
When Texas Instruments (TXN) invented the digital signal processor in 1978, it replaced a board full of analog components with one programmable chip. That chip made modern wireless communications possible – leading up to the mobile phones we can't live without.
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 moment in deep learning.
As I'm sure you've realized... this helped pave 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 – including ChatGPT, Gemini, and Claude – run on Nvidia chips.
In 1985, when I started covering semiconductors, worldwide revenues for the entire industry were around $29 billion. Today, that's roughly how much Nvidia earns in net income every eight weeks.
Semiconductors have been compounding 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 industry revenues will hit more than $1.3 trillion in 2026. That's a 64% year-over-year jump. 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 and add nearly $400 billion in new sales.
According to Gartner's projections, the rest of the industry (nonmemory) 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, with the big tech giants increasing their AI infrastructure spending by more than 50%.
But that's not all...
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. 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 infrastructure 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...
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 this volatile market, 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 changing anytime soon.
Good investing,
Joe Austin
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