Suppose in January 2015 you had the foresight or luck to identify semiconductor stocks as the next “big play” of the decade.
Perhaps you saw their potential in powering advanced graphics processing units, application in nascent artificial intelligence (AI), or integration into everyday appliances and vehicles as part of the Internet of Things.
So, you invested $10,000 in shares of Nvidia Corp. (ticker: NVDA). Fast forward to January 2025, and your investment would have compounded at an astonishing 75.6% annualized rate, ballooning to $2,849,788.40.
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Of course, this assumes you had the stomach for the risks of holding Nvidia. At one point, your investment would have lost 66.3% of its value, and Nvidia’s stock fluctuated by an average of 48.6% up or down each year. It wasn’t until 2023 that the stock truly took off.
But this also assumes you picked the right semiconductor stock. If instead you chose Nvidia’s competitor Intel Corp. (INTC), your story would be quite different. Intel’s annualized return over the same period was -2.6%, meaning your $10,000 investment would have shrunk to just $7,702.
When picking individual stocks, especially in a risky, high-growth industry like semiconductors, the odds of landing on a loser are far greater than finding the next Nvidia. A much smarter and more balanced choice would have been buying a semiconductor exchange-traded fund (ETF).
For instance, investing in the VanEck Semiconductor ETF (SMH) over this period would have yielded an annualized return of 26.5%, turning $10,000 into $105,918.44.
This is why ETFs can be invaluable for investors, particularly in sectors like semiconductors, where a few outliers generate most of the returns while the majority underperform.
By buying a broad basket through an ETF, you dramatically increase your chances of capturing exposure to the key winners driving much of the industry’s outperformance.
“Semiconductor stocks may be well positioned for the future due to strong demand from AI and continuous advancements across other critical technologies,” says Arne Noack, regional investment head — Xtrackers, Americas — at DWS Group. “Additionally, ongoing constructive policy, such as the CHIPS and Science Act, may be supportive to domestic production and reduce dependency, creating a favorable environment for growth.”
Here are seven of the best semiconductor ETFs to buy today:
ETF | Expense ratio |
VanEck Semiconductor ETF (SMH) | 0.35% |
iShares Semiconductor ETF (SOXX) | 0.35% |
Invesco PHLX Semiconductor ETF (SOXQ) | 0.19% |
Invesco Semiconductors ETF (PSI) | 0.56% |
First Trust Nasdaq Semiconductor ETF (FTXL) | 0.60% |
SPDR S&P Semiconductor ETF (XSD) | 0.35% |
ProShares Ultra Semiconductors ETF (USD) | 0.95% |
VanEck Semiconductor ETF (SMH)
“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 the August Wealth Management Group. The largest ETF in this segment is SMH, which currently has $24.5 billion in assets under management (AUM).
This ETF tracks the MVIS U.S. Listed Semiconductor 25 Index, which focuses on the largest and most liquid U.S. companies that generate at least 50% of their revenues from semiconductors. Because the ETF has the potential to get very top-heavy when certain semiconductor stocks like Nvidia outperform, there’s a 20% weight cap on individual holdings. SMH charges a 0.35% expense ratio.
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.” SMH’s main competitor, SOXX fits this bill.
This ETF is smaller than SMH, with $14.6 billion in AUM, but is by no means undercapitalized. It tracks the NYSE Semiconductor Index, a benchmark of the 30 largest U.S.-listed semiconductor stocks. SOXX is a popular pick for traders thanks to its options chain that features a variety of expiration dates and strike prices. It is also fairly liquid, with a minimal 0.03% 30-day median bid-ask spread.
Invesco PHLX Semiconductor ETF (SOXQ)
“While certain segments of the semiconductor market, like memory, may be facing near-term pressure due to oversupply concerns, the longer-term growth potential driven by advancements in AI, autonomous driving and high-performance computing remains strong,” says Rene Reyna, head of thematic and specialty product ETF strategy at Invesco. Invesco’s offering here is SOXQ.
This semiconductor ETF’s main strength is low fees. Whereas SMH and SOXX both charge a 0.35% expense ratio, SOXQ undercuts both at 0.19%. For a $10,000 investment, that’s $35 in annual fees versus $19. This ETF also tracks a fairly notable semiconductor benchmark: the PHLX Semiconductor Sector Index. Investors get exposure to 30 large, market-cap weighted U.S. semiconductor companies.
Invesco Semiconductors ETF (PSI)
“Having broad exposure to the semiconductor ecosystem via an ETF allows investors to capture these growth opportunities while helping navigate the cyclical nature of the industry,” Reyna says. Investors looking to outperform SOXQ may find PSI an attractive alternative. This ETF tracks the Dynamic Semiconductor Intellidex Index, which uses a “smart beta” approach to screening stocks.
Instead of just picking the largest and most liquid semiconductor companies, PSI uses fundamentals-based criteria. The ETF evaluates 30 prospective holdings based on price momentum, earnings momentum, quality, management action and value. However, the use of an advanced index results in higher fees. Compared to SOXQ, PSI is significantly pricier, with a 0.56% expense ratio.
First Trust Nasdaq Semiconductor ETF (FTXL)
PSI isn’t the only semiconductor ETF to use an advanced index methodology. Its main competitor is FTXL, which tracks the Nasdaq U.S. Smart Semiconductor Index. This ETF screens semiconductor stocks based on return on assets, gross income and momentum. Instead of market-cap weighting holdings, FTXL weights stocks based on their trailing-12-months cash flow and rebalances semiannually.
FTXL’s index criteria is theoretically sound, but the execution has been less than perfect due to higher turnover and a pricey 0.6% expense ratio. Over the trailing five-year period, the ETF has returned an annualized 16.9%. This seems impressive but is less so when you consider the less complicated Nasdaq U.S. Benchmark Semiconductors Index returned an annualized 38.3%.
SPDR S&P Semiconductor ETF (XSD)
Market-cap weighted semiconductor ETFs like SMH and SOXX prioritize the larger companies, making them top-heavy. On the other hand, smart-beta semiconductor ETFs like PSI and FTXL use fundamental screeners to construct their portfolios. A third alternative is equal-weighted semiconductor ETFs, which can provide more balanced exposure with a higher proportion of small- and mid-cap companies.
The ETF to use for this role is XSD, which tracks the S&P Semiconductor Select Industry Index. At each quarterly rebalance cycle, each of XSD’s 41 holdings is assigned an equal weight. This helps the ETF “buy low, sell high” in an objective and systematic manner. The top holdings in XSD tend to be whatever companies have outperformed in between rebalances. XSD charges a 0.35% expense ratio.
ProShares Ultra Semiconductors ETF (USD)
The semiconductor industry is highly cyclical over both short- and long-term time frames. This volatility can create opportunities for traders looking to speculate. While you can trade options on ETFs like SOXX, another alternative is a leveraged semiconductor ETF like PSI. This ETF aims to deliver two times the returns of the Dow Jones U.S. Semiconductors SM Index, but only over a daily holding period.
USD primarily holds swaps instead of semiconductor stocks. These are derivatives traded with a counter-party that synthetically provide USD with its leveraged exposure to the Dow Jones U.S. Semiconductors SM Index. Swaps tend to be pricey, with USD’s high 0.95% expense ratio reflecting that. In addition, the long-term performance of this ETF can be unpredictable due to compounding.
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7 Best Semiconductor ETFs to Buy in 2025 originally appeared on usnews.com
Update 01/23/25: This story was published at an earlier date and has been updated with new information.