Key Takeaways
Most investors are aware that AI stocks are significantly influencing the current surge in the stock market.
There’s been a lot of discussion around major players like Nvidia (NASDAQ:NVDA), especially with OpenAI at the forefront of transformative generative AI technologies like ChatGPT.
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However, selecting a standout in this dynamic sector isn’t straightforward. Even leading AI companies have their vulnerabilities. For instance, Nvidia faces growing competition, particularly from AMD, as clients increasingly consider developing in-house semiconductor solutions. TSMC (NYSE:TSM), a top chip manufacturer, is also experiencing intense competition from revitalized firms. Intel has invested heavily in its foundry operations, while TSMC struggles with capacity constraints. There are also geopolitical concerns, particularly regarding its base in Taiwan.
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An Alternative to Consider
If you’re after the financial benefits of the stock market without the hassle of picking individual stocks, an exchange-traded fund (ETF) may be the way to go. These funds diversify their investments across various stocks, usually tied to a specific theme, such as a sector or region.
Several ETFs focus on the semiconductor sector, and one standout is the VanEck Semiconductor ETF (NASDAQ: SMH), which has demonstrated strong performance since its 2011 inception.
SMH Depends on the data Y chart
The chart illustrates that SMH has consistently outperformed the S&P 500, with its advantage widening, particularly since 2016 and continuing into the AI boom.
SMH holdings feature many of the familiar chip industry leaders. A glance at the top 10 holdings and their proportions reveals much about the fund’s success.
| Stock | Percentage of Net Assets |
|---|---|
| Nvidia | 19.3% |
| Taiwan Semiconductor Manufacturing | 10.2% |
| Broadcom | 7.2% |
| Micron Technology (NASDAQ:MU) | 6.6% |
| ASML (NASDAQ: ASML) | 5.9% |
| RAM Research | 5.8% |
| Advanced Micro Devices | 5% |
| Texas Instruments | 5% |
| Applied Materials | 4.9% |
| KLA Corporation | 4.8% |
| Intel | 4.8% |
If you’re tracking developments in the AI sector, many of these companies likely sound familiar, particularly since the top performers have seen impressive gains lately. Even ASML, after a period of underperformance, has recently risen significantly.
Recent advancements by companies like ASML and Intel highlight the robustness of the AI boom, as it lifts previously lagging businesses.
Why the VanEck Semiconductor ETF Might Be a Good Long-Term Choice
The recent success of the SMH ETF is closely tied to the AI wave. Yet even if this boom turns out to be short-lived, the fund is positioned for potential long-term gains.
This is largely due to the undeniable growth in semiconductor demand as technology evolves. Everyday items like appliances and cars, once reliant on basic electronics, now incorporate advanced computing that depends heavily on semiconductors. The demand for cloud computing was already surging prior to AI’s rise. Who knows where technology will evolve next?
The VanEck Semiconductor ETF has a price-to-earnings ratio of 46x, which might suggest it’s pricey, but it’s crucial to recognize that many leading companies are experiencing substantial growth. For instance, Nvidia had a remarkable 62% revenue increase in its last quarter, and Micron’s earnings per share are projected to quadruple this year.
In the long run, the VanEck Semiconductor ETF could prove to be far more affordable than its current trailing P/E ratio implies.
Furthermore, this investment offers a solid alternative to the S&P 500 by including international players like TSMC and ASML that are absent from that index.
If you’re eager to enhance your AI portfolio or simply seeking an effortless avenue to invest in the AI landscape, the VanEck Semiconductor ETF might fit the bill.
Is Now the Right Time to Buy the VanEck Semiconductor ETF?
Before purchasing shares in the VanEck Semiconductor ETF, consider this:
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*Stock Advisor will return on February 3, 2026.
The opinions expressed here are solely those of the author and do not necessarily reflect those of Nasdaq, Inc.
