The U.S. Department of Defense (DoD) has identified 14 critical technology sectors that it considers vital to maintaining national security. These sectors are grouped into three categories under the 2023 National Defense Science and Technology Strategy.
The first, “Seed Areas of Emerging Opportunity,” focuses on early-stage innovations such as quantum computing, advanced materials and next-generation wireless technologies.
The second, “Effective Adoption Areas,” highlights technologies that are undergoing widespread adoption, including artificial intelligence (AI), microelectronics and advanced computing.
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The third, “Defense-Specific Areas,” encompasses technologies directly enhancing military capabilities, such as directed energy, hypersonics and cybersecurity.
The most active category today is effective adoption, as it includes technologies that are already being implemented at scale. In this segment, the DoD has identified AI, microelectronics and advanced computing as essential to its modernization efforts.
Common to all three of these themes are semiconductors. These are complex materials — typically silicon –engineered to have electrical conductivity between that of a conductor (like copper) and an insulator (like glass).
This unique property allows semiconductors to control electrical signals, making them essential for processing and storing information in virtually all digital devices.
Their critical role in both consumer electronics and defense underscores why governments and corporations alike are investing heavily in semiconductor development and supply chain security.
“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, which offers the Xtrackers U.S. National Critical Technologies ETF (ticker: CRTC). “Additionally, ongoing constructive policy, such as the CHIPS and Science Act, may be supportive to domestic production, creating a favorable environment for growth.”
Here are seven of the best semiconductor exchange-traded funds (ETFs) to buy today:
| Fund | Expense ratio |
| VanEck Semiconductor ETF (SMH) | 0.35% |
| iShares Semiconductor ETF (SOXX) | 0.35% |
| VanEck Fabless Semiconductor ETF (SMHX) | 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% |
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 August Wealth Management Group. A great example is SMH, which holds three of the biggest semiconductor companies.
In the U.S, this includes Nvidia Corp. (NVDA), a leader in designing graphics processing units (GPUs) that are essential for AI workloads. In Europe, ASML NV (ASML) controls the supply of extreme ultraviolet lithography machines needed to produce cutting-edge chips. Finally, Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) fabricates semiconductors for major technology companies.
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 an example of an ETF that meets this criteria.
SOXX tracks the NYSE Semiconductor Index, which holds 30 U.S.-listed semiconductor stocks. Unlike SMH, TSM and ASML are not featured in its top holdings. Instead, the ETF emphasizes more domestic companies like Broadcom Inc. (AVGO), Qualcomm Inc. (QCOM) and Advanced Micro Devices Inc. (AMD). The ETF charges a 0.35% expense ratio, the same as SMH, and trades with a low bid-ask spread.
VanEck Fabless Semiconductor ETF (SMHX)
TSM is unique as the largest dedicated contract chipmaker, producing semiconductors for companies worldwide, but its reliance on centralized manufacturing makes it vulnerable to supply chain disruptions and geopolitical tensions. An alternative to companies like TSM is the fabless semiconductor model, where firms focus solely on chip design while outsourcing production to third-party manufacturers.
This approach allows companies to prioritize innovation without the capital-intensive burden of maintaining fabrication plants. Major players in this space include AMD and Nvidia, which develop cutting-edge processors while relying on foundries like TSM to handle production. To focus on fabless chip designers, VanEck offers SMHX as an alternative to SMH, at the same 0.35% expense ratio.
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. The firm offers SOXQ as a competitor to SOXX.
SOXQ tracks the PHLX Semiconductor Sector Index, a well-known benchmark of the 30 largest U.S.-listed semiconductor stocks, with significant overlap with SMH and SOXX. However, it charges a 0.19% expense ratio, lower than the 0.35% charged by SOXX and SMH. For a $10,000 investment, this works out to around $19 in fees per year versus $35, which can help long-term investors save more.
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. Some semiconductor ETFs attempt to manage downside risk better by implementing additional screening criteria. A great example is PSI, which goes beyond just including the largest semiconductor stocks.
This ETF tracks the Dynamic Semiconductor Intellidex, which like the PHLX Semiconductor Sector Index is limited to 30 U.S.-listed companies. However, it screens eligible constituents based on fundamentals-based criteria, including price momentum, earnings momentum, quality, management action and value. The index is reconstituted and rebalanced quarterly. However, PSI charges a higher 0.56% expense ratio.
First Trust Nasdaq Semiconductor ETF (FTXL)
FTXL is another example of a “smart beta” semiconductor ETF that doesn’t rely on market capitalization to pick stocks. This ETF tracks the Nasdaq U.S. Smart Semiconductor Index, which selects semiconductor stocks based on three fundamental factors: return on assets, gross income and momentum, all of which are measured on a trailing basis. The bottom-quartile-scoring companies are disqualified from inclusion.
The remaining 30 to 50 companies are selected and weighted based on their trailing-12-month cash flow, with an upper limit of 8% weight and a lower limit of 0.5%. Every six months, the index is reconstituted to add, drop and rebalance holdings according to its rule set. However, as with PSI, FTXL charges a higher 0.6% expense ratio due to its more complex index and higher portfolio turnover, which incurs costs.
SPDR S&P Semiconductor ETF (XSD)
The simplest weighting methodology is equal weighting. Under this rule set, all investable semiconductor stocks, regardless of their fundamentals or market capitalization, receive the same allocation. This is the approach followed by the S&P Semiconductor Select Industry Index, which equally weights the 40 semiconductor stocks found in the broader S&P Total Market Index. To track this index, consider XSD.
XSD’s portfolio features much higher exposure to small- and mid-cap semiconductor companies, which gives it more growth potential at the cost of higher volatility. Instead of giants like NVDA and TSM dominating, the top holdings in XSD tend to be whichever companies have outperformed between rebalancing cycles. The ETF charges the same 0.35% expense ratio as SOXX and SMH.
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7 Best Semiconductor ETFs to Buy in 2025 originally appeared on usnews.com
Update 02/24/25: This story was published at an earlier date and has been updated with new information.
