Investing $1,000 might appear inconsequential, almost akin to a small drop in a vast ocean of financial seas. Nonetheless, when allocated wisely, such an amount holds the potential to yield substantial returns over time. Consider the growth trajectory of stocks like Nvidia (NASDAQ: NVDA), which has experienced a meteoric rise over the past few years, surging by over 100 times in the last decade.
While individual stocks offer higher upside potential compared to exchange-traded funds (ETFs), there exists a particular ETF that stands out as a compelling choice for investors inclined towards growth-oriented tech stocks: the VanEck Semiconductor ETF (NASDAQ: SMH).
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Delving into the VanEck Semiconductor ETF
Established in 2011, the VanEck Semiconductor ETF mirrors the MVIS US-Listed Semiconductor 25 Index, comprising 25 prominent companies primarily engaged in the production of semiconductors and semiconductor equipment.
Noteworthy among its top holdings as of the conclusion of July were Nvidia (20% of the portfolio’s value), Taiwan Semiconductor Manufacturing (13%), and Broadcom (8%). Chip stocks are currently in vogue, especially with the flourishing of artificial intelligence (AI), although these stocks have been consistent winners over an extended period. The performance chart below demonstrates the VanEck Semiconductor ETF’s exceptional performance relative to the broader market in the past decade.
The ascent of technology as an increasingly vital component of the economy has empowered the VanEck Semiconductor ETF to significantly outpace the S&P 500, even prior to the recent AI surge and pandemic-induced market fluctuations.
The Edge of an ETF over an Individual Stock
Dabbling in nascent technology ventures inherently carries a plethora of risks. While the tech elite foresees generative AI as the forthcoming transformative technology, on par with the internet in magnitude, uncertainty shrouds the potential victors.
Presently, Nvidia exerts dominance in the data center GPU realm. However, the landscape could undergo substantial shifts in the years ahead, potentially witnessing the emergence of other burgeoning players. Opting for an ETF guarantees exposure to the chip stocks exhibiting the most remarkable ascents. Additionally, owning an ETF diversified across 25 stocks mitigates the inherent volatility of individual investments, thereby cushioning the impact of market fluctuations on your portfolio.
Reasoning behind the VanEck Semiconductor ETF Investment Case
Despite the stellar surge witnessed by chip stocks like Nvidia, the chip sector still harbors ample room for growth in the AI revolution.
For instance, Advanced Micro Devices (NASDAQ: AMD) recently reported a more than twofold increase in revenue from its data center segment during the second quarter, attributed to the burgeoning sales of its new Instinct Mi300 GPUs. TSMC, the largest third-party contract chip manufacturer globally, recorded accelerating revenue growth, with a robust 45% revenue uptick in July. Notably, demand within the AI chip realm, exemplified by entities like Tesla, continues to surpass supply.
Tech luminaries such as OpenAI’s Sam Altman and Tesla’s Elon Musk fervently pursue the development of artificial generative intelligence (AGI) systems – AI systems rivaling or surpassing human intelligence. Although realizing AGI may herald truly disruptive applications of artificial intelligence, fostering new industries and reshaping societal operations, tech enterprises will undoubtedly continue sprinting towards this goal.
As underscored by Meta CEO Mark Zuckerberg, the costs of lagging in the AI race far exceed the expenses of investing extravagantly in AI infrastructure for cultivating novel AI applications and tools. One of the simplest strategies to capitalize on the burgeoning AI domain is through acquiring shares in the VanEck Semiconductor ETF. The ETF’s triumphs throughout the last decade signal a persistence unlikely to wane.
Contemplating an Investment in the VanEck Semiconductor ETF
Prior to embarking on an investment journey with the VanEck Semiconductor ETF, contemplate this:
The Motley Fool Stock Advisor analyst team recently pinpointed what they perceive as the 10 best stocks necessitating investment. Surprisingly, VanEck Semiconductor ETF didn’t make the cut. The 10 highlighted stocks possess the potential to yield monumental returns in the forthcoming years.
Ponder upon the Nvidia inclusion in this list on April 15, 2005 – a mere $1,000 directed towards their recommendation would have transformed into a whopping $774,894!*
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