Semiconductor ETFs Strengthen on Potential Broadcom, Qualcomm Deal

Semiconductor stocks and sector-related ETFs continued to strengthen Monday, pushing the broader technology segment to new intraday highs, as traders jumped on a potential $130-billion deal in the chip sector.

The iShares PHLX Semiconductor ETF (NasdaqGM: SOXX) rose 0.9% and the VanEck Vectors Semiconductor ETF (NYSEArca: SMH) gained 0.7% on Monday.

More risk-tolerant traders betting on quick near-term gains for semiconductor stocks also capitalized on the Direxion Daily Semiconductors Bull 3x Shares (NYSEArca: SOXL), which takes the leveraged 300% daily exposure of the PHLX Semiconductor Sector Index, and the ProShares Ultra Semiconductors (NYSEArca: USD), which follows the 200% daily performance of the Dow Jones U.S. Semiconductors Index. On Monday, SOXL increased 2.5% and USD advanced 1.3%.

Semiconductor companies rallied Monday after Broadcom (NasdaqGS:AVGO proposed to acquire Qualcomm (NasdaqGS: QCOM in what could be the biggest merger in the tech sector, Reuters reported.

“The fact that the deal is on the table is huge,” Paul Nolte, portfolio manager at Kingsview Asset Management, told Reuters. “We have not seen much in the way of dealmaking this year. So this might jumpstart some of the dealmaking ahead of the tax policy changes.”

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AVGO shares were 0.3% lower Monday while QCOM was 1.9% higher after a huge jump Friday.

The initial optimism over the deal may have waned as some argued Qualcomm may reject the $70-per-share cash and stock deal on grounds that it’s opportunistic and posses regulatory risks, Bloomberg reports. Qualcomm company stocks have weakened in the past year over its legal fight with Apple (NasdaqGS: AAPL), which has led to some calling this a low opportunistic grab by Broadcom.

Nevertheless, Qualcomm would still add something to Broadcom’s portfolio.

“Net net, Broadcom needs LTE and 5G capability that they don’t have today,” Patrick Moorhead, analyst at Moor Insights & Strategy, told the Financial Times. “That’s what this comes down to. What comes with it, though, is a ton of complexity. There is a lot of overlap in WiFi and Bluetooth, which could absolutely raise the ire of the regulators.”