Microsoft, Amazon, Alphabet, Meta Platforms, and Oracle are set to invest around $700 billion in capital expenditures by 2026, marking an 81% increase from the previous year. A significant portion of this investment aims to address the rising demand for semiconductors.
In the investment realm, two primary exchange-traded funds (ETFs) dominate this sector: the VanEck Semiconductor ETF (NASDAQ: SMH) and the iShares Semiconductor ETF (NASDAQ: SOXX). Additionally, the Invesco PHLX Semiconductor ETF (NASDAQ: SOXQ) has made its way into third place. While all three ETFs share similar names, they differ in terms of cost and investment intensity.
Some may recall Nvidia flashing a “double down” signal back in 2009; interestingly, a company markedly smaller than Nvidia is now showing a similar “full conviction” signal. It’s intriguing to see history repeating itself, in a way.
When considering these ETFs, SMH takes a more centralized approach toward AI infrastructure. In contrast, SOXQ presents the lowest ownership cost. SOXX, however, might pose the most challenging investment scenario among them.
VanEck Semiconductor ETF (SMH)
SMH tracks the performance of 25 stocks within the MVIS US Listed Semiconductor 25 Index. This ETF is market capitalization weighted, allowing positions to grow without an upper limit, which skews the portfolio toward larger companies. Here are some of its main holdings:
- Nvidia: 15.55%
- Taiwan Semiconductor Manufacturing: 9.78%
- Micron Technology: 7.28%
- Advanced Micro Devices: 7.22%
- Intel: 6.56%
iShares Semiconductor ETF (SOXX)
This ETF includes 30 stocks, benchmarked against the ICE Semiconductor Index. It employs weight limits for individual stocks, offering a chance for smaller and mid-sized firms to have a more significant representation. Notable holdings include:
- Micron: 11.04%
- Advanced Micro Devices: 9.51%
- Broadcom: 6.58%
- Intel: 6.53%
- Marvell Technology: 6.18%
Invesco PHLX Semiconductor ETF (SOXQ)
This ETF also comprises around 30 stocks, corresponding to the PHLX Semiconductor Sector Index. Its portfolio is very similar to SOXX, but it has a notably lower expense ratio of 0.19%, compared to SOXX. Its primary assets include:
- Micron: 11.26%
- Nvidia: 9.12%
- Broadcom: 8.39%
- Intel: 6.67%
- Advanced Micro Devices: 6.51%
SMH vs. SOXX vs. SOXQ
When you look closer, the VanEck Semiconductor ETF stands out as the most substantial yet has shown impressive performance. Over the past five years, it has averaged a 36% annual return, outpacing the 31% average of the iShares Semiconductor ETF. Notably, Nvidia and TSMC together account for about 25% of SMH’s portfolio, making it ideal for those wanting heavy exposure to these significant players.
On the downside, while the iShares ETF’s restrictions on individual stock holdings create a more balanced exposure, some criticism arises over its expense ratio, currently at 0.34%. In contrast, Invesco’s ETF has benefited from a lower expense ratio, slightly outperforming the iShares version recently. It’s an ongoing debate, really.
If you’re considering where to allocate your investment, the Invesco PHLX Semiconductor ETF seems to be a solid choice. Just keep in mind, these should serve as supplemental, rather than primary investments. Position sizing shouldn’t be overly aggressive, but with the company’s anticipated growth and capital investments, it has the potential to perform well.
Should you buy VanEck ETF Trust – VanEck Semiconductor ETF stock now?
Before you dive into purchasing stocks like the VanEck ETF Trust, consider this:
The Motley Fool’s analyst team has its sights on other stocks they believe present a better chance for growth in the coming years, and, interestingly, the VanEck Semiconductor ETF isn’t on that list.
When you evaluate past performance of stocks like Netflix and Nvidia, which massively outperformed initial investments, you realize the power of informed choices.
Ultimately, the track record speaks for itself, and the Motley Fool’s recommendations often lead to significant returns over time. It may be worth joining this investing community to stay ahead.
