5 AI Hardware Stocks Create a New ‘MANIA’ Trade That Replaces the Magnificent 7. Hedge Your Bets on the Hot Tickers with These 2 Leveraged ETFs.
Move over, Magnificent 7. It’s time for the M-A-N-I-A trade, courtesy of the top holdings of the iShares Semiconductor ETF (SOXX).
The top 20 holdings in SOXX by size start with Micron (MU), Advanced Micro Devices (AMD), Intel (INTC), Broadcom (AVGO), and Nvidia (NVDA). They might as well be the new pop stars of the U.S. stock market. You can rearrange that nicely to MU-AMD-NVDA-INTC-AVGO, or “MANIA” for short.
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And with Marvell Technology (MRVL) and Applied Materials (AMAT) right behind that fabulous five, the MANIA basket has a fairly deep bench too.
SOXX is the market leader, so any signs of the ETF topping out are destined to quickly have a domino effect on the broad market indexes. It’s top holdings also now occupy a lot of space at the top of the SPDR S&P 500 ETF (SPY) and the Invesco QQQ Trust (QQQ). The former is where the vast majority of index investing inflows end up.
How Hot Is SOXX?
There are more than 4,000 U.S.-traded ETFs. Among those, many, perhaps several hundred, are valuable as ways to filter through stocks. In my opinion, though, no more than 75 U.S.-traded ETFs are actually investable.
Because so many of these products, while viable and functional, are a lot like others. Case in point, SpaceX (SPCX) goes public and is soon followed by 25 applications for ETFs that twist and turn that single stock, using leverage or inverse techniques.
And my bias is toward reducing that list of 75 ETFs even further. Blame a market that moves too much in sync. That can be a source of great short-term gains. And, a setup for major losses to follow. I’m a risk manager first, so my initial reaction to gaudy numbers like these is skepticism.
Just look at the top section of my performance table for those 75 ETFs I track most closely. SOXX, and its performance over the past three months, 52 weeks, and in the year to date, are in a league by themselves. This is a wide-ranging list, and its YTD return of more than 105% is much more than twice that of the second-best ETF.
That might seem like a call for a victory cigar. But I’m thinking it’s more of a yellow warning flag. Let’s see just how “priced for perfection” the semiconductor sector is. Because based on some technical indicators, it is flashing trouble signs, left, right, and center.
Here’s SOXX, which as we’ll see in a moment, is a who’s-who of the most talked-about stocks of 2026. That’s what happens when a basket of industry names doubles within a calendar quarter, as SOXX just did.
That daily chart is what I’d call “concerning.” Not enough to assume the MANIA trade is over. Only that it is on the ropes.
The market’s assumption is an unending growth trajectory. As much as I appreciate what AI can do for us, and the fact that “we need more compute” is the rallying cry right now, call me skeptical.
Volatility That Will Knock Your SOXX Off
This is a recently enhanced screener on Barchart.com. There’s a lot going on here, so I’ll de-mystify and highlight for you, using the parts I circled or pointed to in purple.
First, an implied volatility of 62% is about three times that of the S&P 500 Index ($SPX). That tells me that even with the upward thrust this year, SOXX is prone to sharp pullbacks. If the chart breaks down as capital flees the hot trade of the year, for whatever reason? Big problem.
That volatility level puts SOXX in the 98% percentile. In other words, during the past 52 weeks, it has only had higher volatility once. Trend Seeker, one of Barchart’s proprietary technical signals, is on “Strong Buy,” as I’d expect it to be. It is momentum-driven, and I’m complementing that with a contrarian perspective.
To see just how recent volatility trends could cause SOXX to fly or die going forward, that “Expected Move” chart (lower left section above) projects a $125 move over the next three months. In which direction? I can’t tell you that. Because this measures a range of outcomes, not a direction.
That’s where the warning lights should come on. They have for me, and I’m looking for ways to prepare for the worst, while hoping for the best, with SOXX. Still, this extreme pricing tells us that the initial phase of quiet, steady accumulation is over.
This is where I am finding increasing uses for leveraged ETFs. Not as speculative tools. Instead I use them as a way to hedge since options are so volatile that put buying as a standalone strategy is prohibitively expensive. Covered call writing is OK, but it doesn’t protect against a steep decline in SOXX.
It all depends on how you are currently positioned, and how you want to change your posture toward this market-leading industry. The Direxion Daily Semiconductor Bear 3X ETF (SOXS) can be a hedge if you own some of the stocks individually, or even as a short-term counter to a QQQ-oriented portfolio.
The Direxion Daily Semiconductor Bull 3X ETF (SOXL) is what I’d call a “sell and replace” component. For instance, if semiconductor stocks and ETFs like SOXX are holdings of a size you’d prefer to reduce, SOXL provides three times the upside. Or, a way to trade one-third as much capital with a similar day-to-day experience, dollars wise, as owning SOXX.
From a purely objective charting perspective, the momentum indicators have entered a dangerous exhaustion window. The semiconductor sector has effectively carried the entire burden of keeping the cap-weighted averages out of the red this year. But when an index relies on a single, concentrated theme to sustain its entire performance, it is an accident waiting to happen. Make sure you have insurance.
Rob Isbitts created the ROAR Score, based on his 40+ years of technical analysis experience. ROAR helps DIY investors manage risk and create their own portfolios. For Rob’s written research, check out ETFYourself.com.
On the date of publication, Rob Isbitts did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com