The Best Tech ETF to Buy With $2,000 Right Now
Tech stocks have dominated the market narrative over the last couple of years, fueling the bull market and the AI boom. Investors have a lot of options when it comes to tech ETFs. The most popular is generally considered to be the Invesco QQQ ETF (NASDAQ: QQQ). This ETF tracks the Nasdaq-100, and has historically outperformed the S&P 500.
However, there's another ETF that I think is a better buy for 2025. I'm talking about the VanEck Semiconductor ETF (NASDAQ: SMH).
The VanEck Semiconductor ETF is the largest semiconductor ETF in the U.S., with $23 billion in assets under management. That makes it larger than the iShares Semiconductor ETF (NASDAQ: SOXX), which tracks the PHLX Semiconductor Index, which some investors see as the best way to track the semiconductor industry.
The VanEck Semiconductor ETF has also historically outperformed SOXX. As the chart below shows, it has not only beaten SOXX, but also QQQ and the S&P 500.
As you can see, the VanEck Semiconductor ETF has jumped nearly 10 times in the last decade. For several years, it traded in tandem with SOXX, but recently it's separated as its holdings are different from its rival ETF. It's more heavily weighted toward Nvidia, for example.
The VanEck Semiconductor ETF's top three holdings are Nvidia, Taiwan Semiconductor Manufacturing Company, and Broadcom, which make up more than 40% of the ETF combined.
Nvidia needs little introduction at this point. More than any other company, Nvidia deserves credit for sparking the generative AI boom. While OpenAI's launch of ChatGPT was a watershed moment, the components that made that product possible belong to Nvidia. These days, Nvidia is still the clear leader in the industry, with an estimated market share of 95% in data center GPUs. Nvidia reported revenue growth of 94% in its third-quarter report, showing that demand for its product continues to soar. It makes up 20% of the VanEck Semiconductor ETF.
TSMC dominates the contract chip manufacturing industry. It makes more than half of the third-party chips in the world, and roughly 90% of advanced chips. In benefiting from the AI boom and the broader recovery in the semiconductor industry, TSMC has also delivered impressive results. Revenue is up 37% to $26.9 billion, and earnings per share have jumped 56% to $2.24. It represents 13% of the VanEck Semiconductor ETF.
Finally, Broadcom has taken longer to emerge as an AI winner, but its most recent results showed demand is climbing. The diversified chip stock, best known for its networking components and switches, said in its most recent earnings report that AI revenue jumped 220% to $12.2 billion, driven by its AI XPUs and Ethernet networking components. 10% of the VanEck Semiconductor ETF is invested in Broadcom.
A chip stock portfolio led by those three stocks and other sector leaders like ASML is well-positioned to outperform the market.
In addition to its holdings, which offer a balanced approach to AI and the chip sector, the ETF also looks like a good value for its growth prospects.
The fund currently trades at a price-to-earnings ratio of 38, which compares to the Invesco QQQ Trust at 35 and the SPDR S&P 500 ETF at 28.
With the better growth prospects for SMH, it's worth paying up for the chip ETF.
However, the best reason to buy the VanEck Semiconductor ETF is because it's the most direct way to get exposure to the AI boom, and 2025 looks poised to be another strong year for the industry. President Trump just announced private-sector investments of at least $100 billion in AI data centers, and valuations for start-ups like OpenAI and Anthropic are soaring.
The VanEck Semiconductor ETF has historically crushed the S&P 500 for a reason, and it's a good bet to continue outperforming the market in the coming years.
Before you buy stock in VanEck ETF Trust - VanEck Semiconductor ETF, consider this:
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Consider when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $874,051!*
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*Stock Advisor returns as of January 21, 2025
Jeremy Bowman has positions in Broadcom, Nvidia, Taiwan Semiconductor Manufacturing, and VanEck ETF Trust-VanEck Semiconductor ETF. The Motley Fool has positions in and recommends Nvidia, Taiwan Semiconductor Manufacturing, and iShares Trust-iShares Semiconductor ETF. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
The Best Tech ETF to Buy With $2,000 Right Now was originally published by The Motley Fool
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