Despite some added volatility and a significant rotation out of tech stocks in 2026, semiconductors remain a hot way to play the artificial intelligence (AI) narrative. Even though the tech sector is down modestly on the year, several of the major semiconductor ETFs are up more than 10%.
There are some short-term concerns about slowing momentum and valuation levels, but there’s little question that the AI revolution will support demand in this key sector for years to come. That makes the chip sector an ideal place for your next $1,000 that you can buy and hold for the next decade or more.
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Four major semiconductor ETFs are available to investors, but they’re far from interchangeable. Look under the hood and you’ll find differences in selection strategies that can make one ETF look very different from another.
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1. VanEck Semiconductor ETF
The VanEck Semiconductor ETF(NASDAQ: SMH) is the largest ETF in this space with assets of more than $42 billion. It tracks the MVIS US Listed Semiconductor 25 Index, a collection of 25 companies that generate at least 50% of their revenue from semiconductors and chip equipment. The resulting portfolio is market cap-weighted.
2. SPDR S&P Semiconductor ETF
The SPDR S&P Semiconductor ETF(NYSEMKT: XSD) is linked to the S&P Semiconductor Select Industry Index. It essentially targets the same type and number of companies as the VanEck Semiconductor ETF, except that it equal weights the portfolio. That improves diversification and overweights smaller companies in this sector.
3. iShares Semiconductor ETF
The iShares Semiconductor ETF(NASDAQ: SOXX) follows the NYSE Semiconductor Index and could be thought of as a cross between the two ETFs listed above in terms of strategy. It market cap-weights its portfolio but puts limits on individual holding weights. The top five companies are capped at 8%, while the remaining names top out at 4%.
4. Invesco PHLX Semiconductor ETF
The Invesco PHLX Semiconductor ETF(NASDAQ: SOXQ) is the youngest of the ETFs I’m featuring here and tracks the PHLX Semiconductor Sector Index. This fund also market cap-weights its portfolio and puts the same 8%/4% individual caps on its holdings, so it’s incredibly similar to the iShares Semiconductor ETF.
Which semiconductor ETF is the best?
It would be understandable to think that all these ETFs are similar. At a high level, they are, but there’s enough difference between selection methodologies and weighting strategies that one could be preferable over another.
Here are a few key differences:
- Expense ratio: The Invesco fund is the cheapest at 0.19%. The others are in the 0.34%-0.35% range.
- International exposure: The SPDR has almost all of its assets invested in U.S. companies. The three others have approximately 20% of assets invested overseas.
- Concentration: All of the ETFs hold fewer than 50 names. Due to its equal weighting (the others all use some version of cap weighting), the SPDR ETF has a much heavier tilt toward small and mid caps. The others are much heavier in companies including Nvidia, Advanced Micro Devices, and Applied Materials.
For me, I prefer to avoid the top-heavy concentration of the VanEck Semiconductor ETF and its 19% weighting in Nvidia and 11% in Taiwan Semiconductor. That works great when megacaps are leading, but it’s a pretty big bet on just two companies.
I like the idea of equal-weighting this sector through the SPDR S&P Semiconductor ETF, but it’s about 75% invested in non-large-cap stocks. That’s a little too far in the other direction for me.
That narrows it down to the iShares Semiconductor ETF and the Invesco PHLX Semiconductor ETF. Given their high degree of overlap and correlation, I’m going to use the expense ratio as the tiebreaker. When everything else seems equal, take the lower fee advantage.
But these ETFs can all be the buyer’s choice. If you want the heavy Nvidia exposure or to avoid international stocks, for example, you may find another semiconductor ETF to be a better fit. But at a high level, I believe they all do a good job of providing varying exposure to this high-potential sector.
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David Dierking has positions in iShares Trust – iShares Semiconductor ETF. The Motley Fool has positions in and recommends Advanced Micro Devices, Applied Materials, Nvidia, Taiwan Semiconductor Manufacturing, and iShares Trust – iShares Semiconductor ETF. The Motley Fool has a disclosure policy.
