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Investing in AI: Why the VanEck Semiconductor ETF is a Solid Choice for 2025

This top-performing ETF gets you exposure to artificial intelligence that’s not just Nvidia.

Nvidia (NASDAQ: NVDA) stock was the best-performing stock in the S&P 500 index in 2023 and the third-best performer in 2024. The stock’s remarkable success is driven by soaring demand for the company’s graphics processing unit (GPU) chips and technology that enable artificial intelligence (AI) capabilities.

The AI revolution has gained momentum over the past few years, particularly following the launch of OpenAI’s ChatGPT in late 2022. This event showcased generative AI technology, significantly broadening the scope of AI applications.

The global AI market is projected to exceed $630 billion by 2028, nearly tripling its 2024 size, according to IDC, indicating a potential 30% compound annual growth rate (CAGR). Strong growth in AI is expected to continue in the long run.

While Nvidia remains a strong investment in AI, some investors may prefer gaining exposure through an exchange-traded fund (ETF). ETFs, which can be traded like stocks, offer diversification and reduced risk compared to investing in individual stocks.

One of the leading AI-focused ETFs is the VanEck Semiconductor ETF (NASDAQ: SMH). It is notable that this ETF does not explicitly mention AI in its name, yet semiconductors are essential components in AI infrastructure—from data centers to various electronic devices, including smartphones and vehicles.

VanEck Semiconductor ETF: Overview

Launched in 2011, the VanEck Semiconductor ETF is an index fund tracking the performance of the MVIS US Listed Semiconductor 25 index, comprising a portfolio of global companies in the semiconductor value chain. The fund features 25 stock holdings and favors larger companies.

Utilizing modified market cap weighting, the ETF caps any holding at a maximum of 20%. Its total expense ratio stands at 0.35%, which is reasonable for an industry-specific fund.

VanEck Semiconductor ETF: Top 10 Stock Holdings

According to data from VanEck and YCharts, the ETF’s top holdings primarily include:

  • Chip Producers: Seven of the top ten are chipmakers, including 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 other companies.
  • Chip Equipment Manufacturers: ASML (4) and Applied Materials (6).

Wall Street forecasts strong five-year average annual earnings growth for Nvidia, Taiwan Semiconductor Manufacturing (TSMC), and AMD. AMD, a significant player in the GPU space, is rapidly increasing its footprint in AI chip manufacturing.

In summary, the VanEck Semiconductor ETF is well-positioned to benefit from AI growth, boasting a lengthy track record unlike many newer AI ETFs.