Given a long history of market volatility, the recent strength of the semiconductor sector this year has provided stability and growth to many global chip makers. Since the beginning of the year, the PHLX Semiconductor Index (SOXX), a fund that tracks the U.S. semiconductor sector, has spiked 40% from its low of 552.26 in February to its current level of 774.70 as of Tuesday afternoon. (See also: SOXX: iShares PHLX Semiconductor ETF.)

Overall Industry Growth Inflates Companies’ Stock Price

Stocks leading the SOXX include Broadcom Ltd. (AVGO), Intel Corp. (INTC), Micron Technology Inc. (MU), Qualcomm Inc. (QCOM) and Skyworks Solutions (SWKS), who have seen gains between 31.1% and 87.4% since their lows at the beginning of the year.

Micron, for example, the semiconductor maker that saw a steep decline in 2014, saw its shares gain 20% in August alone, and 80% since May to a trading price of $17. Analysts have upped Micron’s price target to $20, indicating an additional 20% projected growth. (See also: What’s Behind Micron Technology’s Soaring Price.)

Commodity Market Driven by Consumer Demand

The overall industry trend provides hope amidst a relatively weak global situation, as semiconductor strength often indicates future growth. The chip industry is also a commodity industry, integral to products from automobiles to handheld devices. For this reason, chip makers often are regarded as riskier investments, since they tend to go through boom and bust cycles. The industry’s recent price stabilization and rising supply contract prices indicates heightened demand for the commodities.  

Bullish investors see long-term growth potential in the increased demand for chips, particularly in the DRAM chip market. The resultant flock to semiconductor stocks has inflated the share price of many semiconductor players. Whether or not the projected growth reflected in the price hike will be justified by the chip makers’ future earnings and revenue reports will reveal itself in a short matter of time. (See also: Semiconductors Reach Multi-Year High.)

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