Investors looking for tactical approaches to wealth building may want to consider select semiconductor stocks and the related exchange traded funds as the industry accrues momentum on the back of advances in artificial intelligence.
That thesis is playing out in real time this year. Take the case of the VanEck Semiconductor ETF (SMH). That basket of 26 chip equities is higher by 44.71% year-to-date, or more than triple the returns of the S&P 500. The 165% gained by Nvidia (NASDAQ: NVDA) — SMH’s largest holding — since the start of the year is a clear benefit, but there’s more to the story.
Nvidia is captivating investors due in part to the company’s exposure to AI, but other SMH member firms have AI exposure as well. Plus, boding well for the long-term SMH thesis, semiconductors are the picks and shovels of a variety of disruptive technologies beyond AI.
Chip Forecast Bright for SMH
Said another way, many of the innovative technologies that are increasingly essential to everyday life and commerce can’t operate without semiconductors.
“Semiconductors are tiny, but these mighty chips power our world. They are fuelling this current industrial revolution,” noted deVere Group CEO Nigel Green. “Semiconductors are at the forefront of technological progress. As our reliance on electronic devices continues to grow, the demand for semiconductors is skyrocketing – and will continue to do.”
Whether it’s electric vehicles, smartphones, renewable energy products, or more, the products made by SMH member are firms are essential in a world that’s dependent on electronic devices and increasingly prioritizing solutions to climate change. Chips are also vital in national security.
“Beyond their technological significance, semiconductors have also become critical strategic assets. They are vital for national security, defense applications, and emerging technologies such as artificial intelligence, 5G, and the Internet of Things (IoT),” added Green. “The ability to control semiconductor manufacturing and develop cutting-edge chip designs has become a matter of top level strategic importance for countries and companies alike.”
That highlights the intense battle between the U.S. and China for semiconductor supremacy and moves by other countries to reshore their chip needs. The bottom line is that while the moves higher won’t be in a straight line, the long-term outlook for SMH is appealing. Demand and national security needs indicate as much.
“Their strategic importance is what makes them such an attractive, a potentially hugely rewarding, proposition. Savvy investors keen to build wealth over the next decade will pile in,” concluded deVere’s Green.
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