Strategic Semiconductor ETF Picks as China's Inflation Hits Three-Year High

China's latest inflation data takes the global semiconductor landscape to a critical juncture. On Jan. 9, 2026, the National Bureau of Statistics of China reported that consumer price inflation (CPI) surged 0.8% to a three-year high, while producer prices continued their deflationary streak, falling 1.9% year over year. 

This contradictory picture of consumer inflation, alongside industrial deflation, presents a complex challenge for global semiconductor investors, with China representing approximately one-third of global semiconductor consumption.

As the global semiconductor industry relies on China for everything from raw materials to final packaging, "exported inflation" from this nation threatens to squeeze the margins of global chip giants. Against this backdrop, exchange-traded fund (ETF) investors might increasingly be looking toward "de-risked" plays.

Why Inflation in China Hits Chips Everywhere

Despite years of "reshoring" efforts, the semiconductor industry worldwide remains tethered to the Chinese economy. China’s role extends beyond that of a consumer, serving as a critical ‘bottleneck’ in the upstream supply chain.

Raw Material Dominance: China currently controls approximately 70% of global rare-earth mining and over 90% of the refining capacity. With relation to the semiconductor industry, essential minerals for chip production, such as dysprosium (used in advanced logic chips) and gallium, are sourced almost exclusively from Chinese suppliers.

•    The U.S. Vulnerability: Data from the U.S. Geological Survey indicates that the United States remains reliant on imports for over 80% of its rare-earth needs (as of 2024 data), with a staggering 99% dependence on China for specific refined minerals like dysprosium.

•    Packaging and Testing: While a chip may be designed in California and "printed" in a foundry in Taiwan or Arizona, the final stage — Advanced Packaging and Testing (ATP) — is still heavily concentrated in China.

Therefore, when China's internal inflation rises, the cost of labor, energy, and raw material extraction spikes. This creates a "double-whammy" for chipmakers — they must pay more for the base chemicals and minerals while simultaneously facing higher costs for the final assembly of their products. For an industry already grappling with high valuations, rising input costs directly threaten the ‘AI-fueled’ profit margins investors have come to expect.

Traditional Semiconductor ETFs vs Strategic Ones

Large and popular semiconductor ETFs, such as SMH, SOXX and SOXQ, track globally based companies, including non-U.S. firms with substantial China-linked demand. Moreover, the fact that they are heavily concentrated in mega caps like Nvidia NVDA and Broadcom AVGO, many of which generate meaningful revenue from China, makes them more exposed to Chinese inflation. 

On the contrary, some other semiconductor ETFs like Invesco Semiconductors ETF PSI, First Trust NASDAQ Semiconductor ETF FTXL and Strive U.S. Semiconductor ETF SHOC, which lean more toward U.S.-domiciled companies, might offer strategic alternatives in the current situation, if an investor wants to reduce the China-exposed risk. 

While it is impossible to totally de-risk a portfolio from China exposure, given the global semiconductor industry’s heavy concentration in the nation, choosing ETFs like PSI, FTXL and SHOC offers a strategic deviation from high-risk concentration toward a more domestic-centric profile — with some U.S. giants like Micron Technology MU leading a broader industry shift by breaking ground on massive 'mega-fabs' in New York and Idaho to relocate critical manufacturing back to American soil.

Semiconductor ETF Picks

Invesco Semiconductors ETF PSI

This fund, with a market value worth $1.1 billion, offers exposure to 30 U.S. semiconductor companies. Its top 10 holdings include Micron Technology (6.29%), KLA Corp. KLAC (4.96%), Advanced Macro Devices AMD (4.05%) and Amkor Technologies AMKR (3.59%).

Notably, KLA reduced its China revenue share from around 41% (in fourth-quarter 2024) to 30% (in fourth-quarter 2025). Meanwhile, AMD's next-generation processors, including high-performance CPUs for data centers, will be produced in the United States at the TSMC Arizona facility, a significant change from the company’s prior assembly/testing operations in China. 

On the other hand, Amkor Technologies is making a significant expansion in America by building a major new advanced packaging and test campus in Peoria, AZ, a $7 billion investment to strengthen the domestic supply chain. 

PSI has gained 43.6% over the past year. The fund charges 56 basis points (bps) as fees and traded at a volume of 0.06 million shares in the last trading session. It sports a Zacks ETF Rank #1 (Strong Buy).

First Trust NASDAQ Semiconductor ETF FTXL

This fund, with net assets worth $1.43 billion, offers exposure to 31 U.S. companies within the semiconductor industry. Its top 10 holdings include MU (15.46%), AMKR (5.45%) and KLAC (4.22%). 

FTXL has surged 59.1% over the past year. The fund charges 60 bps as fees and traded at a volume of 0.81 million shares in the last trading session. It holds a Zacks ETF Rank #2 (Buy).

Strive U.S. Semiconductor ETF SHOC

This fund, with net assets worth $149.5 million, offers exposure to 30 semiconductor stocks. Its top 10 holdings include MU (5.93%), KLAC (4.65%), and Texas Instruments TXN (4.65%). 

Texas Instruments is significantly expanding its U.S. semiconductor manufacturing with a $60 billion investment in new fabs (factories) in Texas and Utah.

SHOC has soared 54.2% over the past year. The fund charges 40 bps as fees and traded at a volume of 0.01 million shares in the last trading session. It carries a Zacks ETF Rank #2.

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