As investors and traders alike approached the peak of this spring’s earnings season, all eyes were on Nvidia Corp. (ticker: NVDA), a heavyweight in the semiconductor industry. The company unveiled its first-quarter results for fiscal year 2025 on May 22 after markets closed.
Overall, Nvidia soundly beat consensus analysts’ expectations. The company reported revenues of $26 billion — up 18% from the previous quarter — announced a 10-for-1 stock split and raised its quarterly dividend from $0.04 to $0.10 per share, or $0.01 per share on a post-split basis.
Historically, Nvidia’s earnings announcements have triggered substantial market volatility; for instance, the forecasted implied move based on Nvidia’s options chain during the most recent earnings report was 8.7% up or down. During the firm’s February earnings report, the implied move was 11% either way.
[Sign up for stock news with our Invested newsletter.]
Thus, investing in a powerhouse like Nvidia might seem like a solid strategy, but it’s crucial to remember that even market leaders can falter with just one disappointing earnings report or a downward revision in guidance. With a double-digit implied move, the wrong results could lead to a steep drawdown.
For those looking to invest in the semiconductor sector over the long term, focusing solely on one or two companies could therefore expose you to significant, uncompensated risks.
Instead, if you’re aiming to leverage broader industry trends — such as re-shoring, advancements in artificial intelligence (AI) and government subsidies — without putting all your eggs in one basket, semiconductor exchange-traded funds, or ETFs, can offer a more diversified approach.
This strategy not only mitigates company-specific risks but also allows you to capitalize on the sector’s growth potential as a whole, while managing fewer individual positions.
“The potential benefits of investing in semiconductor ETFs include exposure to a high-growth sector with strong fundamentals, diversification across multiple companies in the industry and the potential for long-term capital appreciation,” says Sean August, CEO of August Wealth Management Group.
Here are seven of the best semiconductor ETFs to buy today:
| ETF | Expense ratio |
| Invesco PHLX Semiconductor ETF (SOXQ) | 0.19% |
| Invesco Semiconductors ETF (PSI) | 0.57% |
| iShares Semiconductor ETF (SOXX) | 0.35% |
| VanEck Semiconductor ETF (SMH) | 0.35% |
| SPDR S&P Semiconductor ETF (XSD) | 0.35% |
| GraniteShares 2X Long NVDA Daily ETF (NVDL) | 1.15% |
| Direxion Daily NVDA Bear 1X Shares (NVDD) | 1.01% |
Invesco PHLX Semiconductor ETF (SOXQ)
“Semiconductors are an indispensable component of all modern electronic devices, and their importance has grown significantly in the aftermath of the pandemic-induced chip shortage and the surging demand for AI,” says Rene Reyna, head of thematic and specialty product strategy at Invesco. For semiconductor exposure, Invesco offers SOXQ, which tracks the PHLX Semiconductor Sector Index.
SOXQ’s portfolio targets the 30 largest U.S.-listed semiconductor manufacturers. This includes not only Nvidia, but also Broadcom Inc. (AVGO), Advanced Micro Devices Inc. (AMD), Micron Technology Inc. (MU), Qualcomm Inc. (QCOM), Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) and Texas Instruments Inc. (TXN). It charges a reasonable 0.19% expense ratio.
Invesco Semiconductors ETF (PSI)
“It must be noted that billions of dollars have been enacted globally to directly subsidize local chip production in many regions,” Reyna says. “The U.S. CHIPS and Science Act earmarked $52.7 billion for semiconductor production, and other governments have also committed tens of billions of dollars in domestic subsidies.” This catalyst will likely provide a tailwind to semiconductor manufacturers.
For semiconductors, Invesco also offers PSI, which tracks the Dynamic Semiconductor Intellidex Index. “The index seeks to go beyond traditional measurements to consider the fundamentals that drive healthy companies and growth,” Reyna says. “PSI screens its 30 holdings for factors like price momentum, earnings momentum, quality, management action and value in an attempt to outperform.”
iShares Semiconductor ETF (SOXX)
“When looking for semiconductor ETFs, investors should consider factors such as the expense ratio, the underlying index or benchmark, the fund’s holdings and diversification strategy, and the ETF’s historical performance,” August says. “It is also important to assess the fund’s liquidity and trading volume to ensure that it is easy to buy and sell.” SOXX is well-rounded across all these dimensions.
With over $13.8 billion in assets under management (AUM) and a 30-day average volume of 3.2 million shares traded, SOXX is highly popular. It holds a portfolio similar to SOXQ by tracking the NYSE Semiconductor Index. Traders will appreciate this ETF thanks to a low 30-day median bid-ask spread of 0.01%, along with the availability of an options chain. SOXX charges 0.35%.
VanEck Semiconductor ETF (SMH)
The cyclicality and high volatility of the semiconductor industry means that inevitably, some investors will experience unrealized losses. However, this situation also presents an opportunity for tax-loss harvesting. For instance, an investor could sell SOXX to realize a capital loss, but immediately deploy the sales proceeds into shares of a different semiconductor ETF such as SMH.
Because SMH tracks the MVIS U.S. Listed Semiconductor 25 Index, it is not “substantially identical” to SOXX despite historically similar returns and holdings. Thus, investors can avoid running afoul of the IRS’s 30-day wash-sale rule. But even as a stand-alone investment, SMH is a great pick, with high liquidity and AUM, narrow spreads, and the same 0.35% expense ratio as SOXX.
[READ: Are There Any Tax-Free Investments?]
SPDR S&P Semiconductor ETF (XSD)
Nvidia wasn’t always the trillion-dollar-market-capitalization giant it is today. Before 2015, the company was one of many mid-cap stocks in the semiconductor industry before it went on a massive bull run. Thus, there is the risk that much of the growth investors are expecting has already come and gone, and future prospects for the stock to see similar parabolic returns may be remote.
To gain more exposure to small- and mid-cap growth names in the semiconductor industry, investors can buy XSD. This ETF tracks the S&P Semiconductor Select Industry Index, which equally weights its holdings at each rebalance. It charges the same 0.35% expense ratio as SMH and SOXX, and is also very tax-efficient despite higher turnover, with a 0.2% 30-day SEC yield.
GraniteShares 2X Long NVDA Daily ETF (NVDL)
If you’re considering trading around Nvidia’s earnings and have a bullish outlook, one traditional approach is buying a call option to bet on the stock price rising. However, options trading involves nuances like volatility crush, which occurs when the implied volatility of the underlying asset drops sharply after earnings are announced, reducing the value of any options you hold.
Additionally, options are subject to time decay known as theta, which gradually erodes the option’s value as expiration approaches, particularly affecting short-term contracts. For a simpler directional bet, a two-times leveraged Nvidia bull ETF like NVDL could work. However, be aware that this ETF is highly volatile, is not suitable for long-term holds and charges a high 1.15% expense ratio.
Direxion Daily NVDA Bear 1X Shares (NVDD)
If you’re considering shorting Nvidia, anticipating that its earnings or guidance might disappoint, you need to be aware of the risk of margin calls. This occurs when the value of the securities you borrowed to short surges, causing your broker to demand additional funds to cover the potential losses. Alternatively, using an inverse ETF like NVDD can simplify the process of betting against Nvidia.
With NVDD, your maximum potential loss is capped at the amount you initially invested in the ETF. Unlike traditional short selling, where borrowing shares involves the risk of incurring infinite losses if the stock price rises significantly, investing in an inverse ETF means there’s no risk of a margin call. However, the usual risks associated with high volatility, long-term holding and a high 1.01% expense ratio apply.
More from U.S. News
6 of the Best AI ETFs to Buy Now
7 Best Thematic ETFs to Buy in 2024
7 High-Risk, High-Reward Stocks to Buy
7 Best Semiconductor ETFs to Buy in 2024 originally appeared on usnews.com
Update 05/23/24: This story was previously published at an earlier date and has been updated with new information.
