Check out these 2 winning low-cost semiconductor ETFs

As usual, traders wasted no time taking advantage of the recent decline in semiconductor stocks. Last week, the PHLX Semiconductor Index rallied 4.5% to a new all-time high, extending its rebound from its Jan. 31 low. Over the past 12 months, the index is up 52%, more than double the return of the S&P 500 over the same period.

Traders continue to accumulate semiconductor names as the noise around the artificial intelligence (AI) revolution reaches a fever pitch. With the growing spread of AI applications in consumer, healthcare, industrial, retail and many other contexts, the demand for sophisticated microchips is increasing.

Positive earnings surprises from Qualcomm, ARM Holdings and others have supported the 2024 rally in chip stocks. AI’s potential to reinvigorate an industry recovering from a long supply chain crisis is the factor key.

According to Grand View Research, the global AI market will grow 37.3% annually and reach $1.8 trillion by 2030. As machines leverage the ability to think, the way we work, learn and interact with technology could change radically.

Since hardware is the foundation of every AI application, semiconductor companies that provide AI-enabled computing, memory, and networking solutions can rake in huge profits.

But with the AI ​​story alone pushing U.S. stock indexes to all-time highs, aren’t semiconductor stocks too hot to touch right now?

Perhaps. Maybe not.

Last week, the Semiconductor Industry Association (SIA) reported that global chip sales are expected to grow 13.1% in 2024, based on a strong rebound in the second half of 2023. This implies that chip sales this year will exceed 2022 record levels by more than $20 billion. More importantly, it suggests strong growth for companies selling semiconductor materials, equipment and chips, not just for artificial intelligence, but for uses in communications, defense, self-driving cars, robotics and many other areas .

There are many choices when it comes to incorporating semiconductor growth into an investment strategy. Riding long-term winners like NVIDIA, AMD and Broadcom has merit, but taking single stock risk isn’t for everyone.

A more conservative approach is to invest in an exchange-traded fund (ETF) focused on semiconductor companies. The challenge here is that most are expensive. Some are leveraged and, therefore, present extremely high risk.

Luckily, MarketBeat’s ETF Screener has helped us sift through some semiconductor-themed ETFs to uncover low-cost options.

iShares PHLX Semiconductor ETF

iShares PHLX Semiconductor ETF NASDAQ:SOXX tracks the closely watched Philadelphia Stock Exchange Semiconductor Index mentioned at the beginning of this article. As such, it is a market capitalization-weighted portfolio of the 30 largest U.S. companies that design, manufacture and distribute semiconductors.

Naturally, Nvidia tops the list of holdings and represents 10% of the fund, making SOXX a low-risk way to gain exposure to AI’s first winner, a stock that trades at nearly 100 times earnings.

The ETF has an expense ratio of 0.35%, which is low compared to most semiconductor-focused funds. It also falls compared to the 25.6% annualized return the portfolio has generated over the past 10 years. With $12 billion in assets under management (AUM) and around one million shares traded every day, the iShares fund is highly liquid and has kicked off a dividend of 0.78% over the past 12 months.

VanEck Semiconductor ETF

With assets of 14.6 billion dollars, The VanEck Semiconductor ETF NASDAQ: SMH it is even more popular than the SOXX fund. He’s impressive considering he was born in December 2011, which makes him 10 years younger than SOXX. While it has the same expense ratio (and, like SOXX, has a chain of options), there are some differences.

The main difference is the index it tries to replicate. SMH is based on the US-listed MVIS Semiconductor 25 index and focuses on chip and equipment manufacturing companies. This makes it a slightly more concentrated version of SOXX, but one that worked very well.

The 10-year yield is 27.2%, placing it second among all U.S. technology funds. As you might imagine, the main source of outperformance is the heavy weighting of NVIDIA, which currently represents 24% of the fund. A significant position in international chip names such as Taiwan Semiconductor and ASML Holding also explains the performance differences and gives SMH a more global feel.

Before you consider the iShares Semiconductor ETF, you’ll want to hear about it.

MarketBeat tracks Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and the iShares Semiconductor ETF wasn’t on the list.

While the iShares Semiconductor ETF currently has a “hold” rating among analysts, top analysts believe these five stocks are better buys.

View the five stocks here