Investing in artificial intelligence (AI) can be difficult. It's clear that this technology will significantly affect the world, but picking which company to invest in can be tricky. Instead of picking one or two stocks, purchasing an exchange-traded fund (ETF) that is focused on the sector is an alternative. ETFs trade just like stocks but consist of multiple companies, spreading out the risk.
One ETF that specializes in companies primed to benefit from AI is the VanEck Semiconductor ETF (SMH -1.01%). This fund holds many companies leading the way in AI products and has plenty of room to continue rising.
The ETF holds some top-tier AI investments
ETFs are required to disclose what stocks are in their fund, so it's easy to see what you're actually investing in. Here are the top 10 holdings for the VanEck Semiconductor ETF and their current weighting.
| Company | Weighting |
|---|---|
| Nvidia | 19.57% |
| Taiwan Semiconductor | 12.22% |
| Broadcom | 7.81% |
| AMD | 5.17% |
| ASML | 4.95% |
| Applied Materials | 4.67% |
| Texas Instruments | 4.38% |
| Qualcomm | 4.33% |
| Micron Technology | 4.21% |
| Analog Devices | 4.07% |
Data source: VanEck. Makeup is as of 9/30/2024.
Clearly, this ETF is weighted heavily toward some AI heavy hitters in Nvidia and Taiwan Semiconductor. These two make up about a third of the fund, which I think is a great strategy.
Nvidia's GPUs are powering the AI arms race by developing AI models and running them after they have been trained. Taiwan Semiconductor is a key chip fabricator that makes chips for Nvidia, AMD, Broadcom, and many other big-tech companies.
By investing heavily in Nvidia and Taiwan Semiconductor, you're not trying to pick a winner in AI; you're just benefiting from the companies that are selling the tools to compete. This is known as picks-and-shovels investing -- from the days when folks made their fortune supplying prospectors. This is the same idea behind the VanEck ETF: It wins no matter what company ultimately strikes gold in AI.
The fund has already had a tremendous year, rising over 40% so far, outperforming the market's return of 21.5% (as measured by the S&P 500). But can it keep it up?
2025 should be another strong year for this ETF
The big question surrounding AI investing is how long it will take to build out the computing power necessary to train these models to deliver what clients want.
One of the biggest spenders in the AI arms race has been Meta Platforms (NASDAQ: META). Its CEO, Mark Zuckerberg, has said that AI will take years to pay off because it must continue building out infrastructure to compete. Meta also warned investors in its outlook that " ... infrastructure costs will be a significant driver of expense growth next year as we recognize depreciation and operating costs associated with our expanded infrastructure footprint."
This suggests that Meta will build even more data center infrastructure in 2025 than in 2024, which is huge news for companies like Nvidia, Taiwan Semiconductor, and other companies within this ETF. And other big tech companies echoed Meta's sentiment, so it's clear that this fund still has lots of room to run.
If you're unsure which stock to buy, the VanEck Semiconductor ETF is loaded with companies that are slated to grow tremendously for the foreseeable future, making it a fantastic pick to beat the market.
