Rates Could Reach 4.5% On AI Spending, And Semiconductors Get Paid First

Semiconductor funds iShares Semiconductor ETF and VanEck Semiconductor ETF remain Buys, driven by robust AI-fueled capital investment and sectoral demand outpacing most of the market. AI infrastructure is pulling unprecedented capital into semiconductors, raising the U.S. neutral interest rate and reshaping investment flows across the economy. I slightly prefer SOXX for new money due to lower Nvidia concentration and fees, but both funds are complementary and benefit from long-term AI and data center trends. Key risks include high valuations, potential funding gaps, and the possibility of customers becoming competitors, but current demand and multi-year contracts support the bull case. In my view, the AI buildout is one reason rates are staying high: it is absorbing free cash flow, credit, equity, and now pension and insurance money. On September 16 the Fed raised its target range to 3.75% to 4%, which I recently covered , arguing that this puts the S&P 500 ( SP500 ) between conflicting fiscal and monetary policies.