AI Hardware Correlation

Definition

AI Hardware Correlation measures how closely a stock's price movements have tracked semiconductor stocks, the hardware side of the AI boom, over the trailing 12 months, isolated from ordinary broad-market movement. It is the second of KashVector's two AI readings, shown next to AI Sector Correlation, which uses a broad AI-themed ETF instead. It describes historical price co-movement only: not a measure of a company's AI-driven revenue, and not a valuation judgment.

Formula

r = Pearson( residual(Stock | RSP), residual(SMH | RSP) )
Stock = The ticker's own daily returns over the trailing year
SMH = Daily returns of the VanEck Semiconductor ETF, the AI-hardware benchmark
RSP = Daily returns of the Invesco S&P 500 Equal Weight ETF, the broad-market control
residual(X | RSP) = What's left of X's daily returns after regressing out RSP — the part of X's movement RSP doesn't explain

Why a second benchmark? The broad AI ETF used for AI Sector Correlation (AIQ) mixes hardware, cloud and software companies, so a stock can look unrelated to it while moving strongly with, or against, semiconductor stocks. Some large software companies have shown a near-zero reading against the broad AI ETF but a clearly negative one against semiconductors, while chip makers read strongly positive on both. No single benchmark fits every company (a large cloud company can read near zero against semiconductors yet clearly positive against the broad AI ETF), which is why both readings are shown.

How to interpret it

0.40 and above
High (red) — strong co-movement with semiconductor stocks beyond what broad-market exposure explains
0.20 to 0.39
Moderate (amber) — meaningful co-movement with semiconductor stocks beyond the broad market
0.05 to 0.19
Low (green) — a weak but present link to semiconductor stock moves
-0.19 to 0.04
None (cyan) — no meaningful link to semiconductor stocks detected over the trailing year
-0.20 and below
Inverse (red) — the stock has tended to move against semiconductor stocks, beyond what broad-market movement explains. Red because it is as strong a link as High, in the opposite direction

Worked example

Worked example: Salesforce (CRM), snapshot for the year to 23 Sep 2026

AI Sector Correlation (vs AIQ, the broad AI ETF)0.07 (Low)
AI Hardware Correlation (vs SMH, semiconductors)-0.24 (Inverse)
Overlapping trading days~249
Read alone, the broad AI reading suggests almost no link to the AI trade. The semiconductor reading shows the shares have tended to move against chip stocks, which the broad reading hides. Readings change as prices do, so treat these as a snapshot, not a fixed property of the company.

Common mistakes

Reading a negative number as "bad"
A negative reading (Inverse, -0.20 or lower) means the stock has tended to move against semiconductor stocks. That is a strong link in the opposite direction, not a quality or valuation judgment, which is why it is coloured red like High rather than as a warning about the company.
Assuming a high reading means the company sells chips
The number measures how the shares have traded alongside semiconductor stocks, not what the company makes or sells. Two companies with very different businesses can move together for market reasons.
Looking at only one of the two readings
The broad AI reading and the semiconductor reading can disagree, and the disagreement is often the useful part: a stock can read near zero against one and clearly negative against the other.
Expecting parity for non-US listings
Stocks listed outside the US trade on a different calendar to the US-listed benchmark, leaving fewer overlapping trading days. This can understate the reading for an otherwise semiconductor-linked international company.

Frequently asked questions

What is AI Hardware Correlation?

A measure of how closely a stock's daily price movements have tracked semiconductor stocks (a semiconductor ETF, SMH) over the trailing 12 months, after removing the effect of general stock-market movement. Semiconductors are the hardware side of the AI boom.

How is it different from AI Sector Correlation?

AI Sector Correlation compares a stock with a broad AI-themed ETF (AIQ) that mixes hardware, cloud and software companies. AI Hardware Correlation compares it with semiconductor stocks only. Both use the same method and the same bands, so the two numbers can be read side by side.

What does "Inverse" mean?

A reading of -0.20 or lower. After removing general market movement, the stock has tended to rise when semiconductor stocks fall, and fall when they rise. It is a strong link in the opposite direction and describes past price behaviour, not a prediction.

Why do some software companies show a negative reading?

Over the past year several large software stocks have tended to move in the opposite direction to semiconductor stocks. Correlation shows that the two moved oppositely; it does not explain why, and it can change as prices do.

Does a high or low reading tell me what to do with a stock?

No. This is a descriptive statistic about historical price co-movement, not a valuation judgment or a recommendation. Use it alongside the valuation and framework scores on the ticker page, not in place of them.

Related terms

AI Sector CorrelationAltman Z-ScoreAll terms →
See it on a real ticker pageRead about AI Sector Correlation