If you’re tempted to buy the dip on the broad basket of semiconductor stocks but aren’t quite sure which names to go after, perhaps an exchange-traded fund (ETF) can help you gain the exposure you need in a cost-effective manner. Indeed, there are plenty of semiconductor industry ETFs to pick from, many of which can provide instant exposure to the many early beneficiaries of the generative AI surge.
Undoubtedly, industry and thematic ETFs aren’t as well-diversified as, say, a vanilla index fund. Given this, investors should ensure that the rest of their portfolios are diversified, even though it may be tempting to some young risk seekers to go heavy on the big AI beneficiaries while they’re experiencing a potentially transitory period of weakness.
Key Points About This Article
- The semiconductor ETFs could be worth looking into if you seek next-level growth and want more AI exposure.
- The SOXX and SMH are the two largest ETFs by AUM, likely because they’re also the best.
- If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.
The case for owning a semiconductor ETF over picking stocks
Given the vast complexities involved with numerous names across the semiconductor industry, most investors may find it best to spread across many stocks to improve their chances of landing a winner.
From GPU makers like Nvidia (NASDAQ:NVDA) to CPU makers, wafer fabrication equipment (WFE) manufacturers, foundries, memory chip makers, and even chip design software developers, there are a plethora of different “angles” to bet on the semiconductor scene.
Some corners of the semi scene are undoubtedly more heated than others. Either way, the semiconductor industry faces is currently in the middle of one of its most profound rises to date on the back of the AI boom, one which may span a number of years.
Only time will tell which is the “best” semi stock to buy right now or if it’s better to spread your bets broadly. Either way, semiconductor stocks could be a source of significant growth for investors with stomachs strong enough to endure the inevitable volatility that comes with the high degree of industry cyclicality.
So, whether or not recent semi-stock choppiness is the beginning or the end of the first cycle, here are two top semiconductor ETFs to buy or watch.
iShares Semiconductor ETF
The iShares Semiconductor ETF (NASDAQ:SOXX) is the second-largest semiconductor ETF based on assets under management. With a competitive 0.35% expense ratio, the SOXX is a pretty cost-effective way to bet on the broad basket of semiconductor companies. In fact, most retail investors may find it more economical to stick with the ETF than pick their own semiconductor stocks, given the commissions involved.
Additionally, the SOXX is well-diversified across the industry, with over 30 holdings at the time of writing. Indeed, you’re gaining exposure to some smaller semiconductor firms, many of which you may never have heard of.
So, if you’re seeking exposure well beyond the large caps like Nvidia, the SOXX is definitely worth consideration. In my view, it’s one of the best big-name semi ETFs on the market.
VanEck Semiconductor ETF
The VanEck Semiconductor ETF (NASDAQ:SMH) is the largest and perhaps the most well-known semi ETF to consider picking up on weakness. The SMH has a 0.35% expense ratio (the same as the SOXX) but is slightly more liquid, given it’s the biggest of the semi-ETF batch.
One important difference between SOXX and SMH is that SMH is more concentrated in Nvidia (20.1% vs. 8.3% for SOXX), with fewer (around 25 vs. 30 for the SOXX) total holdings.
Undoubtedly, if you love Nvidia and want more exposure to Jensen Huang’s incredible GPU powerhouse as he readies Blackwell chips for the new year, the SMH could prove a better bet than the SOXX. If, however, you’re looking for exposure that goes well beyond Nvidia, encompassing names that you probably would never have bet on if you were to pick your own stocks, SOXX may be the better performer.
What’s the Better Semiconductor ETF to Buy?
If I had to pick between the SOXX and SMH, I’d go for the first. Both ETFs are very liquid (they’re the largest out there) and have the same expense ratio. The only determining factor, I believe, lies in the composition of their holdings.
In the case of SOXX, you’re getting more, smaller holdings, which may be key to more sizeable gains over the long haul if you want something beyond the large-cap heavyweights.
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