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Macro

AI Enthusiasm Fuels $145B Surge in Chip Stock Options

AI frenzy doubles semiconductor options trading to $145 billion, with Nvidia dominating 80% of trades amid a surge in chip maker stocks.

By Alex P. Chase

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3/7, 07:35 EST
S&P 500
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NVIDIA Corporation
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Key Takeaway

  • Options trading in semiconductor stocks doubled to $145 billion daily in February, driven by AI enthusiasm.
  • Nvidia Corp. dominates the surge, accounting for 80% of trades after its market value increased by almost 240% last year.
  • The spike in options trading reflects investors' desire to capitalize on or hedge against the AI-driven rally in chip makers.

Surge in Semiconductor Options Trading

Daily average notional volume in single stock puts and calls for members of the Philadelphia Semiconductor Index surpassed $145 billion in February, doubling the average at the end of 2023 and increasing sevenfold from a year earlier. Nvidia Corp., a key player in the AI market, dominated almost 80% of these trades, with its market value soaring by almost 240% last year and up by almost 80% in 2024.

Catching Up on AI Boom

The rapid expansion in options trading in semiconductor stocks may indicate that investors who missed out on last year's rally are now playing catch up. Options not only provide a way to bet on further gains in chip makers but also offer protection in case the rally loses steam. "Consumers and business communities’ confidence in GenAI’s added value justifies any potential price increase," said Bloomberg Intelligence analyst Charles Shum.

TSMC's Role in AI Surge

Taiwan Semiconductor Manufacturing Co. (TSMC), a critical player in the AI market, has seen significant gains, reaching the most overbought level in three years. TSMC's chips are used in some of the most advanced AI processors, driving its recent surge. JPMorgan Chase & Co. raised its target price for TSMC by 10%, highlighting the company's pivotal role in AI processing at data centers and the edge. AI-related revenues are expected to surge by one-fourth by 2027, with TSMC maintaining its lead in developing advanced chips.