Why VanEck Semiconductor ETF is a Smarter Bet for the AI Boom

Nvidia (NASDAQ: NVDA) emerged as the star of the S&P 500 index in 2023 and maintained its momentum as the third-best performer in 2024. This stellar performance is fueled by the surging demand for its graphics processing unit (GPU) chips, a cornerstone technology enabling artificial intelligence (AI) advancements.
The AI revolution, long in the making, reached a turning point in late 2022 with OpenAI’s launch of ChatGPT, showcasing generative AI’s transformative potential. The result? A surge of AI applications across industries. According to IDC, the global AI market, valued at over $630 billion by 2028, is set to nearly triple its 2024 size, growing at an impressive 30% compound annual growth rate (CAGR).
For investors, Nvidia remains a strong contender for capitalizing on AI’s growth. However, exchange-traded funds (ETFs) offer a compelling alternative for those seeking diversified exposure to the AI sector without the risks of individual stocks.
Why VanEck Semiconductor ETF Stands Out
The VanEck Semiconductor ETF (NASDAQ: SMH) might not have “AI” in its name, but it is deeply intertwined with AI’s infrastructure. Semiconductors are the backbone of AI systems, powering everything from data center servers to smart devices like cars and smartphones.
This ETF has consistently outperformed broader benchmarks:
ETF/Index | 1-Year Return | 3-Year Return | 5-Year Return | 10-Year Return |
---|---|---|---|---|
VanEck Semiconductor ETF | 43.9% | 70% | 258% | 922% |
S&P 500 | 23.5% | 30.7% | 93.1% | 242% |
Key Features of the VanEck Semiconductor ETF
- Launch Year: 2011
- Focus: Tracks the MVIS US Listed Semiconductor 25 Index, encompassing global companies in the semiconductor supply chain.
- Diversification: Includes 25 stocks, with modified market cap weighting (capping individual holdings at 20%).
- Expense Ratio: 0.35%, a competitive rate for specialized ETFs.
Top 10 Holdings: Driving Innovation and Growth
Rank | Company | Market Cap | Projected EPS Growth | Portfolio Weight | 5-Year Return |
---|---|---|---|---|---|
1 | Nvidia | $3.3 trillion | 35% | 19.55% | 2,130% |
2 | Taiwan Semiconductor Manufacturing | $1.1 trillion | 31.2% | 12.55% | 290% |
3 | Broadcom | $1.1 trillion | 21.1% | 9.58% | 764% |
4 | ASML Holding | $296 billion | 17.3% | 5.06% | 161% |
5 | Advanced Micro Devices (AMD) | $188 billion | 39.4% | 4.55% | 141% |
6 | Applied Materials | $140 billion | 10.9% | 4.52% | 193% |
7 | Texas Instruments | $173 billion | 1.3% | 4.37% | 68.1% |
8 | Qualcomm | $174 billion | 4.8% | 4.35% | 94.3% |
9 | Micron Technology | $111 billion | 15.1% | 4.08% | 79.1% |
10 | Analog Devices | $105 billion | 18.9% | 4.00% | 96.3% |
Together, these holdings account for 72.61% of the ETF’s portfolio, emphasizing its focus on industry leaders driving AI’s evolution.
Why It’s a Smart AI Investment
Nvidia leads in AI chip innovation, while companies like AMD and Taiwan Semiconductor Manufacturing (TSMC) are also poised for significant growth, capitalizing on demand for AI-enabling semiconductors. Meanwhile, equipment manufacturers such as ASML and Applied Materials supply the tools required to produce cutting-edge chips.
With a proven track record and diversified exposure to semiconductor giants, the VanEck Semiconductor ETF is well-positioned to benefit from AI’s explosive growth. For investors looking for both stability and growth, this ETF represents a balanced way to ride the AI wave.