$1,000 might not seem like much. In fact, it's a little less than the average American makes in a week.
However, $1,000 can deliver big returns over time if it's invested properly. Just take a look at stocks like Nvidia (NASDAQ: NVDA), which has soared during the last couple of years, and is up by more than 100 times over the last decade.
While exchange-traded funds (ETFs) don't offer the same level of upside potential as individual stocks, there's one ETF that looks like a great buy for growth-oriented tech stock investors: the VanEck Semiconductor ETF (SMH -1.01%).
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What's the VanEck Semiconductor ETF?
Founded in 2011, the VanEck Semiconductor ETF tracks the MVIS US-Listed Semiconductor 25 Index, which (as one might guess from the name) is a pure-play index of 25 large companies that make most of their money from producing semiconductors and semiconductor equipment.
The ETF's three biggest holdings as of the end of July were Nvidia (20% of the portfolio's value), Taiwan Semiconductor Manufacturing (13%), and Broadcom (8%).
Chip stocks are particularly in vogue now due to the artificial intelligence (AI) boom, but these stocks have been winners for a long time. The chart below shows how the VanEck Semiconductor ETF has performed relative to the broader market over the last decade.
As you can see, even before the recent AI boom and the pandemic surge, the VanEck Semiconductor ETF was outperforming the S&P 500 by a wide margin as technology became an ever-larger part of the economy.
The advantage of an ETF over a stock
Investing in any new technology brings a lot of risk with it. While most tech leaders believe generative AI will be the next transformative technology, potentially as powerful as the internet, there's still a lot of uncertainty about which companies will emerge as winners.
While Nvidia dominates the data center GPU market now, that could change in the next few years. It could continue to lead the sector, but see other stocks outgrow it.
Holding an ETF helps ensure you'll have exposure to the chip stocks that soar the most. Plus, owning an ETF that offers exposure to 25 stocks instead of just one stock helps smooth out the volatility inherent in investing. In other words, while the sector is likely to remain volatile, investing in the VanEck Semiconductor ETF will help limit the degree to which that volatility will impact your portfolio.
Why the VanEck Semiconductor ETF is a buy
While chip stocks like Nvidia have already skyrocketed, there's still a long growth runway left for the chip sector in the AI revolution.
Advanced Micro Devices (NASDAQ: AMD), for example, just reported that in the second quarter, its data center segment revenue more than doubled as sales of its new Instinct Mi300 GPUs gained traction. TSMC, the world's largest third-party contract chip manufacturer, is reporting accelerating revenue growth, with revenue up 45% in July. AI chip buyers like Tesla are still complaining about shortages, meaning that demand is still outstripping supply.
Finally, tech CEOs like OpenAI's Sam Altman and Tesla's Elon Musk are focused on developing artificial generative intelligence (AGI) systems -- AI that is as capable or even more capable than a human.
It may take reaching AGI for artificial intelligence to become truly disruptive, creating new industries and changing the way we live and work, but there's no doubt that tech companies are going to continue racing to get there.
As Meta CEO Mark Zuckerberg reminded investors recently, the cost of falling behind in the AI race is much greater than the cost of overspending on AI infrastructure to build new AI tools and applications.
One of the easiest ways you can take advantage of the ongoing boom in AI is by buying shares of the VanEck Semiconductor ETF. It has been a big winner over the last decade, and that's unlikely to change.
