Wall Street bets on AI chip boom keep getting more concentrated

The AI boom and success of Nvidia, now the U.S. market’s largest stock, have made the semiconductor sector one of the most closely watched corners of the market. Nvidia’s rise to a market cap over $4 trillion has led to concerns about the S&P 500’s concentration in a handful of tech stocks. But in another respect, a focus on chip stocks as an investment theme can be worth a look for investors with an aggressive bent.

Wall Street is finding new ways to create more concentrated bets on the chip sector.

The VanEck Semiconductor ETF (SMH) has been the standard for investors looking to capture the sector’s growth. Its portfolio spans the global supply chain: Nvidia designs GPUs, TSMC manufactures them, and ASML supplies the necessary equipment. It has grown to nearly $30 billion, according to VettaFi, and is up close to 30% since the beginning of the year.

The Vanguard S&P 500 ETF and SPDR S&P 500 ET Trust (SPY), meanwhile, are up around 13%.

On CNBC’s “ETF Edge” this past Monday, VanEck’s product manager Nicholas Frasse said SMH has worked because of its team of winners at the top. The structure has been key to performance especially as demand for AI has risen. Nvidia was once a gaming chip company, and now it is the face of the AI build out.

On the chipmaker’s most recent earnings call, Nvidia CEO Jensen Huang described its Blackwell platform as, “the next generation AI the world’s been waiting for,” and the head of the chip company added that demand was near “extraordinary.”

Its links across the tech sector and economy are growing: on Thursday, Nvidia announced it would invest $5 billion in Intel to co-develop data centers and PC chips, among the oldest of Silicon Valley’s old guard companies, which the Trump administration recently invested a 10% equity stake in as a matter of national security.

The popular VanEck fund isn’t the only ETF benefitting from the semiconductor industry’s success. The iShares Semiconductor ETF (SOXX) and the Invesco PHLX Semiconductor ETF (SOXQ) each offer slightly different chip exposures, and both of them have drawn in investors looking for ways to gain concentrated exposure to the chip story.

Many of the same chip names top the holdings across these ETFs, though exact weights do vary. But another fast-growing alternative is the SPDR S&P Semiconductor ETF (XSD), which differentiates itself with an equal-weighting approach to stocks held in its underlying index. This means smaller names like Astera Labs and Credo Technology get representation on par with Nvidia or Broadcom.

Case in point: Nvidia’s weight in the fund is currently under 3%, compared to a weighting of over 20% in the VanEck Semiconductor ETF; 12% in the Invesco ETF; and roughly 8% in the iShares fund. Nvidia’s current weight in the S&P 500 is roughly 8%.

The SPDR S&P Semiconductor ETF’s assets under management is $1.51 billion, according to VettaFi, a lot smaller than SMH or the iShares’ SOXX, at over $14 billion. But the fund is up roughly 26% since the beginning of the year, besting the iShares’ ETF performance.

SPDR S&P Semiconductor ETF Top Holdings

Astera LabsCredo TechnologyImpinjRigetti ComputingRambus

Source: VettaFi

Because this fund provides a bet that is spread more broadly across the sector, it provides less single-stock concentration risk for investors.

“If the biggest weights are rising, pay attention to what’s happening in the rest of the space,” senior ETF & technical strategist at Strategas Securities Todd Sohn told CNBC. “It can benefit you on the upside and hurt you on the downside,” he said.

Another way to play the theme is the Invesco Semiconductors ETF (PSI) which as opposed to using a traditional stock index (Invesco’s SOXQ uses the PHLX Semiconductor Index), uses a custom index designed to pick semiconductor companies from the largest to the smallest caps based on changes in price momentum, earnings momentum, value and additional factors. That makes it different than some of the market-cap weighted or equal-weight chip funds, and it usually contains at least a few mid-cap chip designers and manufacturers that may not be included in larger ETFs, though overlap among chip names is to be expected in any of these portfolios.

Invesco Semiconductors ETF Top Holdings

Micron TechnologyLam ResearchBroadcomKLA CorporationQualcomm

Source: Vettafi

Invesco Semiconductors ETF is good for investors who are looking for exposure that isn’t dominated by mega-cap companies.

“If you are very bullish on growth in technology, then you’re going to want to add more semiconductor ETFs in your portfolio,” Sohn said.

A focus on fabless semiconductor companies is among the newest ETF products to hit the market. A fabless chipmaker designs and sells chips, but outsources manufacturing. VanEck launched the VanEck Fabless Semiconductor ETF (SMHX) on Aug. 27.

Sohn said this approach is for an investor who “wants more focused exposure on the type of company involved, as opposed to just the entire spectrum of the semiconductor space.”

In some respects, it isn’t all that different from what is already on offer within semi ETFs: Nvidia, for example, is its No. 1 holding, at over 18%. But there are pure-play fabless companies high among its holdings, such as Cadence Design Systems. And it includes some interesting takes on the theme, with power efficiency as part of the AI and chip story leading the fund to have Monolithic Power, a company working on chips that reduce energy use in data centers, among its top 10 holdings.

“We believe this is a super cycle,” Frasse said. “We’re in the very early innings.”

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