For a moment on June 18, the S&P 500 and Nasdaq-100 indexes had a new top holding: Nvidia Corp. (ticker: NVDA).
Before paring back some gains later in the week, shares of Nvidia briefly surpassed $135 per share, giving the company a market capitalization of more than $3.3 trillion. This dethroned former incumbent Microsoft Corp. (MSFT) for the title of the largest publicly traded company just weeks after overtaking Apple Inc. (AAPL) for the No. 2 spot.
“I think what you’re seeing, and why investors are flocking to Nvidia, is that their technology is simply so far superior to their competitors,” says Robert Draper Jr., founder and chief investment officer of Draper Asset Management. “So, while the stock has done well and, frankly, held up a significant portion of the market as a whole, it’s also put pressure on the likes of Microsoft.”
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In June 2023, shares of Nvidia surpassed the $1 trillion market cap milestone. In the past year, the company posted numerous earnings beats fueled by high demand for its graphics processing units (GPUs) amid the ongoing artificial intelligence (AI) frenzy. Last month, Nvidia split its shares 10-for-1 to make them more accessible to retail investors.
Some equity analysts have set their price targets for Nvidia even loftier, with Rosenblatt Securities analyst Hans Mosesmann revising his initial target of $140 to $200, or $2,000 on a pre-split basis.
That being said, retail investors may not find it prudent to go all-in on Nvidia. The semiconductor industry has numerous competitors who may not be as large or as profitable as Nvidia, but nonetheless offer substantial growth potential and innovation.
“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.
Diversifying within the semiconductor space can reduce risk and provide exposure to a broader range of opportunities. Some of the other companies worth considering in this space include Broadcom Inc. (AVGO), Advanced Micro Devices Inc. (AMD), Micron Technology Inc. (MU), Qualcomm Inc. (QCOM), Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) and ASML Holdings NV (ASML).
Therefore, the easiest way to quickly obtain exposure to Nvidia and these additional stocks in a single ticker is via a semiconductor exchange-traded fund (ETF). You can trade shares of this ETF like a stock and, depending on the ETF, even trade options.
Here are seven of the best semiconductor ETFs to buy today:
| ETF | Expense ratio |
| iShares Semiconductor ETF (SOXX) | 0.35% |
| VanEck Semiconductor ETF (SMH) | 0.35% |
| Invesco PHLX Semiconductor ETF (SOXQ) | 0.19% |
| Invesco Semiconductors ETF (PSI) | 0.57% |
| SPDR S&P Semiconductor ETF (XSD) | 0.35% |
| GraniteShares 2X Long NVDA Daily ETF (NVDL) | 1.15% |
| YieldMax NVDA Option Income Strategy ETF (NVDY) | 0.99% |
iShares Semiconductor ETF (SOXX)
“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. An example of this is SOXX, which has returned an annualized 25.5% over the past 10 years.
This ETF passively tracks the NYSE Semiconductor Index, which holds 30 of the largest U.S.-listed semiconductor stocks. Broadcom is currently the largest holding at around 9%, followed closely by Nvidia, Advanced Micro Devices, Applied Materials Inc. (AMAT) and Qualcomm. It charges a 0.35% expense ratio, or around $35 annually for a $10,000 investment.
VanEck Semiconductor ETF (SMH)
“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.” For an ETF that checks all these boxes, consider SMH.
SMH tracks the MVIS U.S. Listed Semiconductor 25 Index, which focuses on large, highly liquid semiconductor stocks. With just shy of $25 billion in assets under management, or AUM, this ETF is highly popular among investors and traders alike, the latter thanks to the availability of options. It is tax-efficient, with a low 0.4% 30-day SEC yield, and charges the same 0.35% expense ratio as SOXX.
Invesco PHLX Semiconductor ETF (SOXQ)
“Nvidia’s earnings clearly show the impact of firms across the technology landscape attempting to hyper-scale the artificial intelligence industry,” Reyna notes. “However, the rush into AI also serves as a reminder of just how integral all semiconductors are to the modern economy.” For low-cost exposure to semiconductors stocks, Invesco offers SOXQ at a 0.19% expense ratio, cheaper than SOXX and SMH.
SOXQ’s benchmark is the PHLX Semiconductor Sector Index, which focuses on the 30 largest U.S.-listed semiconductor stocks. As expected, Nvidia, Broadcom, and Advanced Micro Devices sit in the top three holdings, followed by Taiwan Semiconductor Manufacturing, Lam Research Corp. (LRCX) and Micron Technology. As with SMH, SOXQ is also fairly tax-efficient, with a low 0.6% 30-day SEC yield.
Invesco Semiconductors ETF (PSI)
“On top of the support for semiconductors from governments across the globe — including the CHIPS and Science Act here in the U.S. — we continue to see efforts to expand production,” Reyna explains. “With Dell Technologies Inc. (DELL) and Nvidia working on a joint factory for xAI’s supercomputer and Apple adding AI capabilities to Siri, there seems to be a sea of change taking place in the industry.”
For a chance at outperforming a passive semiconductor ETF, investors can consider a smart-beta solution like PSI, which tracks the Dynamic Semiconductor Intellidex Index. “PSI screens its 30 holdings for factors like price momentum, earnings momentum, quality, management action and value in an attempt to outperform,” Reyna says. However, the ETF does charge a higher 0.57% expense ratio.
[7 Best Tech ETFs to Buy in 2024]
SPDR S&P Semiconductor ETF (XSD)
Nvidia may be the semiconductor industry leader today, but whether or not it can maintain its current level of growth is debatable. With a $3 trillion market cap, some investors may be doubtful that the stock could soar higher. For greater diversification in semiconductors, a solution may be to buy an equal-weighted ETF like XSD, which tracks the S&P Semiconductor Select Industry Index.
For a 0.35% expense ratio, XSD allocates equal weightings to each of its 39 holdings whenever it periodically rebalances. This means that a mega-cap stock like Nvidia is given the same allocation as a small-cap like Semtech Corp. (SMTC). This gives investors greater exposure to mid- and small-cap stocks, at the cost of lower exposure to the largest semiconductor manufacturers.
GraniteShares 2X Long NVDA Daily ETF (NVDL)
“Nvidia has done such an impressive job of innovating and streamlining the production of their chips, to the tune of basically unveiling a new chip every year, that the aforementioned tech giants must continue buying the latest and greatest at the risk of falling behind their competitors,” Draper argues. If you share his highly bullish views, a leveraged ETF like NVDL could be a good way to express that thesis short-term.
This ETF aims to deliver a daily return that magnifies the performance of Nvidia by two times. But unlike using margin for leverage, investors who buy leveraged ETFs like NVDL are not at risk of a margin call. The maximum loss for this trade is capped at the number of shares purchased. However, long-term holders of NVDL should be aware of volatility decay and a high 1.15% expense ratio.
YieldMax NVDA Option Income Strategy ETF (NVDY)
Nvidia’s dividend yield is fairly paltry, but income-focused investors looking for exposure to it while earning a high yield can use an options-based single-stock ETF like NVDY. This ETF provides exposure to Nvidia via a synthetic covered call strategy. First, the ETF combines a long call and a short put to simulate holding Nvidia stock. Then, the ETF sells covered calls to earn options premiums, but caps upside.
By doing so, NVDY harnesses the high volatility of Nvidia to deliver an incredible 110.6% annualized distribution rate, which is calculated by multiplying the ETF’s most recent distribution per share by 12 and dividing the resulting amount by its most recent net asset value. However, this ETF is considered to be very high-risk and also charges a pricey 0.99% expense ratio.
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7 Best Semiconductor ETFs to Buy in 2024 originally appeared on usnews.com
Update 06/25/24: This story was previously published at an earlier date and has been updated with new information.
