This top-performing ETF’s largest three stock holdings are Nvidia, Taiwan Semiconductor Manufacturing, and Broadcom.
Nvidia (NVDA -3.00%) stock was the best-performing stock in the S&P 500 index in 2023 and the third-best performer in 2024. The stock’s fantastic run is driven by powerful demand for the company’s graphics processing unit (GPU) chips and related technology to enable artificial intelligence (AI) capabilities.
The AI revolution had been gaining steam for several years but hit a big inflection point in late 2022 with OpenAI’s launch of its ChatGPT chatbot. This event showcased generative AI technology, which opened up many more use cases for AI.
The global AI market is estimated to reach over $630 billion by 2028, nearly tripling its 2024 size, according to IDC. This equates to an almost 30% compound annual growth rate (CAGR). Moreover, AI is poised for robust growth over the longer term.
Nvidia stock is still a great way to invest in AI. However, some investors might prefer to gain exposure to the AI space by buying an exchange-traded fund (ETF). These funds are bought and sold like stocks, but their diversification makes them less risky than individual stocks.
Of course, it’s not an either-or thing. Buying an AI stock or two and an AI-focused ETF can make good sense.
The best AI-focused ETF, in my opinion, is not one with artificial intelligence or AI in its name; it’s the VanEck Semiconductor ETF (SMH -2.00%). Semiconductors, or chips, are the building blocks of AI infrastructure, such as servers in data centers and the electronic items AI is “smartening” up, from smartphones to cars.
|
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% |
Data source: YCharts. Data as of Jan. 10, 2025. ETF = exchange-traded fund.
VanEck Semiconductor ETF: Overview
VanEck Semiconductor ETF, which began trading in 2011, is an index fund designed to track the performance of the MVIS US Listed Semiconductor 25 index. This index comprises a portfolio of global companies involved in the entire semiconductor value chain. Its methodology favors larger companies. The fund has 25 stock holdings, all of which are listed on a major U.S. stock exchange.
The ETF uses modified market cap weighting, capping its maximum weighting for any holding at 20%. Its total expense ratio is 0.35%, which is reasonable for an ETF focused on a particular industry or theme.
VanEck Semiconductor ETF: Top 10 stock holdings
|
Holding No. |
Company |
Market Cap |
Wall Street’s Projected Annualized EPS Growth Over Next 5 Years |
Weight (% of Portfolio)* |
5-Year Return |
|---|---|---|---|---|---|
|
1 |
Nvidia |
$3.3 trillion |
35% |
19.55% |
2,130% |
|
2 |
Taiwan Semiconductor Manufacturing (TSM 0.60%) |
$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 -4.76%) | $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% |
|
Total top 10 |
N/A |
N/A |
N/A |
72.61% |
N/A |
|
Overall ETF |
N/A |
Total net assets of $25.5 billion* |
N/A |
100% |
258% |
|
N/A |
S&P 500 |
N/A |
N/A |
N/A |
93.1% |
Data sources: VanEck Semiconductor ETF, finviz.com, and YCharts. EPS = earnings per share. *Portfolio weights and total net assets value as of Jan. 8, 2025. All other data as of Jan. 10, 2025.
The 10 top holdings fall into these categories:
- Chip producers: Seven of the top 10 are chipmakers — Nvidia (No. 1), Broadcom (3), Advanced Micro Devices (5), Texas Instruments (7), Qualcomm (8), Micron (9), and Analog Devices (10).
- Foundry: Taiwan Semiconductor Manufacturing (2) produces chips for companies that contract out chip manufacturing.
- Chip equipment manufacturers: ASML (4) and Applied Materials (6).
Wall Street projects Nvidia, Taiwan Semiconductor Manufacturing (TSMC), and AMD to have particularly strong five-year average annual earnings growth. Like Nvidia, AMD makes GPUs. It’s the second-largest producer of discrete GPUs and a relatively new entrant into the rapidly growing space that Nvidia dominates: AI chips for data centers.
TSMC also benefits from the incredible demand for chips that enable AI capabilities. It manufactures chips for many of the larger semiconductor companies, including Nvidia, and big tech companies, such as Apple, that have designed some of their own chips for AI and other applications.
In short, the VanEck Semiconductor ETF is poised to continue to benefit from the growth of artificial intelligence and has a longer-term track record, unlike many of the new entrants into the AI ETF category.
Beth McKenna has positions in Nvidia. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Apple, Applied Materials, Nvidia, Qualcomm, Taiwan Semiconductor Manufacturing, and Texas Instruments. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
