Tech ETFs have offered some of the highest returns in the stock market in recent years. They have a front row seat to major opportunities like the internet, e-commerce, and artificial intelligence (AI).
That last sector has been the hottest in the stock market recently, so it makes sense to focus on that when searching for the best tech ETF. If you have $5,000 to invest right now, you may want to consider the iShares Semiconductor ETF (NASDAQ: SOXX).
Missed Nvidia in 2009? This Rare Signal Is Flashing Again. In 2009, a “Double Down” signal flashed for a little-known chipmaker called Nvidia. For the first time in years, that same “Total Conviction” signal is flashing for a company 1/100th the size of Nvidia. Continue »
Semiconductors are the foundation of the AI boom
Semiconductor companies produce the chips and equipment that enable AI technology. Nvidia is the fund’s largest position, and it’s also the most valuable publicly traded company. The chipmaker reached that status with its GPUs, which command high margins due to intense demand and supply shortages.
Nvidia recently released earnings and managed to surprise some of the biggest bulls with 106% year-over-year revenue growth and a 62% net profit margin. Numbers like that are almost impossible to find anywhere else, but the iShares Semiconductor ETF’s second-largest position, Micron Technology, has actually managed to deliver better growth rates than Nvidia.
Its three next-largest positions, Advanced Micro Devices, Broadcom, and Marvell Technology, benefit from the same tailwinds as Nvidia. All of these stocks have crushed the S&P 500 over the past five years.
Hyperscalers have committed themselves to long-term deals
Many of the chipmakers’ customers are known as hyperscalers, companies investing heavily in data centers. Amazon, Microsoft, and Meta Platforms are among the largest. Each of these companies has committed to high capital expenditures, and it has become common for tech giants to raise their projected expenses due to rising AI costs.
Amazon raised its capital expenditures from $200 billion to $220 billion and cited higher memory costs. These companies simply seem to shrug off rising costs due to their strong balance sheets.
Micron also announced multi-year customer agreements that offer long-term revenue visibility. This breaks the narrative that AI spending is cyclical since chipmakers are guaranteed sales over multiple years.
The top five holdings make up almost 40% of the iShares Semiconductor ETF’s portfolio. That gives the fund outsize exposure to the current semiconductor opportunity. Its remaining positions are primarily chipmakers and semiconductor equipment providers.
