2 Best Semiconductor ETFs to Buy Now, as the Artificial Intelligence (AI) Revolution Powers Chip Demand
The semiconductor (or chip) stock group has strong long-term growth potential, driven in large part by the robust adoption of artificial intelligence (AI) across industries. The global AI market is projected to increase at a brisk compound annual growth rate (CAGR) of more than 28% from 2024 through 2030, according to Statista.
There are likely to be some huge stock winners in the chip space over the long term. But it can be very challenging to pick individual stocks in fast-evolving technology areas. So, some investors might want to invest in a basket of semiconductor stocks. One way to do so is to buy an exchange-traded fund (ETF). ETFs are bought and sold like stocks, but their diversification makes them less risky than individual stocks.
Two best-performing semiconductor ETFs
Most investors should stick with a semiconductor ETF that has a decent trading history. It's good to see how an ETF held up in a down market, such as 2022. So, in order to make the cut for this article, a semiconductor ETF had to have at least a three-year trading history. That left five ETFs. A review of the short-, medium-, and longer-term performances of these ETFs found that one stood out: VanEck Semiconductor ETF (NASDAQ: SMH). It was the top performer in all time periods examined.
Another ETF that looks worthy of your investing dollars is iShares Semiconductor ETF (NASDAQ: SOXX). It was the No. 2 performer in the various time periods explored. It has the same reasonable expense ratio as the VanEck ETF, 0.35%.
Past performance is not indicative of future performance. That said, investors should consider past performance over the long term when choosing an ETF. Past performance over a longer period tends to reflect in part the success of the strategies of the companies whose shares are included in a particular ETF.
Semiconductor ETF/Index | Year-to-Date 2024 Return | 1-Year Return | 5-Year Return | 10-Year Return |
|---|---|---|---|---|
VanEck Semiconductor ETF | 21.5% | 69.6% | 278% | 961% |
iShares Semiconductor ETF | 9.8% | 50.5% | 215% | 804% |
S&P 500 | 5.7% | 22.9% | 88.2% | 225% |
Data source: YCharts. Data as of April 17, 2024.
VanEck Semiconductor ETF: Overview
The VanEck Semiconductor ETF began trading in 2011 and has $17.7 billion in assets under management, as of April 17. It's an index fund that aims to track the performance of the MVIS US Listed Semiconductor 25 Index. This index consists of the "25 largest and most liquid U.S. exchange-listed companies in the semiconductor industry." (Liquidity relates to a stock's average trading volume.)
The index upon which this ETF is based places heavy weighting on a company's size. But it caps the maximum weighting of any stock in the portfolio at 20%. Currently, Nvidia is capped because it has reached a weighting of 20% (a bit over 20%, to be exact).
VanEck Semiconductor ETF: Top 5 stock holdings
Holding No. | Company | Market Cap | Weight (% of Portfolio) | 5-Year Return |
|---|---|---|---|---|
1 | Nvidia | $2.1 trillion | 20.4% | 1,710% |
2 | Taiwan Semiconductor Manufacturing | $721 billion | 12.5% | 258% |
3 | Broadcom | $595 billion | 7.9% | 370% |
4 | ASML Holding | $358 billion | 5% | 371% |
5 | Micron Technology | $129 billion | 4.7% | 174% |
Top 5 total | N/A | N/A | 50.5% | N/A |
Data sources: VanEck Semiconductor ETF and YCharts. Portfolio weights as of April 16, 2024. All other data as of April 17, 2024.
Nvidia, Broadcom, and Micron are categorized as chipmakers, though they also have varying degrees of software and services offerings. Nvidia's graphics processing unit (GPU) chips are the favored chips for accelerating the processing of artificial intelligence workloads in data centers. Broadcom is notable for being the leading designer of custom AI chips. Micron is a big player in memory chips.
Taiwan Semiconductor Manufacturing (TSM) is the world's largest contract manufacturer of chips. ASML makes equipment for producing chips.
iShares Semiconductor ETF: Overview
The iShares Semiconductor ETF began trading in 2001, and has $12.2 billion in assets under management, as of April 17. It's an index fund that's designed to track the performance of the NYSE Semiconductor Index. This index consists of 20 global companies, all listed on a major U.S. stock exchange, involved in the semiconductor space.
A main difference between the iShares Semiconductor ETF and the VanEck Semiconductor ETF has to do with the weighting of stocks in their portfolios. The VanEck offering's weightings are highly correlated with a company's market cap, whereas the iShares ETF's weightings are much less so. This results in the VanEck ETF being more concentrated. Its top five holdings combined account for just over 50% of its portfolio's assets, whereas this metric is 36% for the iShares ETF.
iShares Semiconductor ETF: Top 5 stock holdings
Holding No. | Company | Market Cap | Weight (% of Portfolio) | 5-Year Return |
|---|---|---|---|---|
1 | Nvidia | $2.1 trillion | 8.9% | 1,710% |
2 | Broadcom | $595 billion | 8.2% | 370% |
3 | Advanced Micro Devices | $249 billion | 6.8% | 460% |
4 | Qualcomm | $183 billion | 6.7% | 135% |
5 | Micron Technology | $129 billion | 5.4% | 174% |
Top 5 total | N/A | N/A | 36% | N/A |
Data sources: iShares Semiconductor ETF and YCharts. Portfolio weights as of April 16, 2024. All other data as of April 17, 2024.
This ETF's top five holdings are all chipmakers. Three of the five were discussed previously. Advanced Micro Devices (AMD) makes central processing units (CPUs) and GPUs, while Qualcomm focuses on chips for wireless connectivity.
Which of the two highlighted semiconductor ETFs is best?
Both ETFs featured in this article are a good way for investors to gain exposure to the semiconductor space. That said, the VanEck Semiconductor ETF is more concentrated. For investors who strongly prefer to invest in the largest companies in the chip space, this would be a positive. However, this high level of concentration increases its risk level relative to the iShares Semiconductor ETF.
Should you invest $1,000 in VanEck ETF Trust - VanEck Semiconductor ETF right now?
Before you buy stock in VanEck ETF Trust - VanEck Semiconductor ETF, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and VanEck ETF Trust - VanEck Semiconductor ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $535,597!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of S&P 500 since 2002*.
*Stock Advisor returns as of April 15, 2024
Beth McKenna has positions in Nvidia. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Nvidia, Qualcomm, Taiwan Semiconductor Manufacturing, and iShares Trust-iShares Semiconductor ETF. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
2 Best Semiconductor ETFs to Buy Now, as the Artificial Intelligence (AI) Revolution Powers Chip Demand was originally published by The Motley Fool
