Is it too late to invest in semiconductor ETF?
Investor Takeaway
Good news, investors! ON Semiconductor is still a bargain right now. According to our valuation, the intrinsic value for the stock is $122.63, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low.
"The potential benefits of investing in semiconductor ETFs include exposure to a high-growth sector with strong fundamentals, diversification across multiple companies in the industry and the potential for long-term capital appreciation," says Sean August, CEO of August Wealth Management Group.
While there were solid returns in the first quarter of 2024, traders and industry pundits feel that the semiconductor party is dimming. Semiconductor industry investors aren't complaining about portfolio performance – not when chip stocks continue to generate solid returns for investors in the first quarter of 2024.
According to data from Grand View Research, the AI market is projected to have a compound annual growth rate of 37% through 2030. The industry hit nearly $200 billion last year, but this trajectory would see it achieve close to $2 trillion by the decade's end.
So, some investors might want to invest in a basket of semiconductor stocks. One way to do so is to buy an exchange-traded fund (ETF). ETFs are bought and sold like stocks, but their diversification makes them less risky than individual stocks.
We believe the semiconductor industry is expected to continue to rebound significantly at a notable growth rate in 2024. The resurgence is driven by increasing demand from various industries and applications.
Performance and Risk
The ETF has a beta of 1.36 and standard deviation of 33.76% for the trailing three-year period, making it a high risk choice in the space. With about 27 holdings, it has more concentrated exposure than peers.
- VanEck Semiconductor ETF (SMH).
- iShares Semiconductor ETF (SOXX).
- SPDR S&P Semiconductor ETF (XSD).
- First Trust Nasdaq Semiconductor ETF (FTXL).
- Invesco Dynamic Semiconductors ETF (PSI).
- Invesco PHLX Semiconductor ETF (SOXQ).
| Symbol | Name | 5-Year Return |
|---|---|---|
| FNGO | MicroSectors FANG+ Index 2X Leveraged ETNs | 43.36% |
| TECL | Direxion Daily Technology Bull 3X Shares | 33.53% |
| SMH | VanEck Semiconductor ETF | 29.98% |
| ROM | ProShares Ultra Technology | 28.71% |
What are the top 3 semiconductor companies?
Major Players In The Semiconductor Industry. NVIDIA Corp (NASDAQ:NVDA), Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSMC), and Broadcom Inc. (NASDAQ:AVGO) are some of the most prominent names in the semiconductor industry.
Smart Devices Aiding Computing Demand
The World Semiconductor Trade Statistics (“WSTS”) projects robust growth in 2024, with an estimated surge of 13.1% annually.
Alternative materials such as graphene, carbon nanotubes, or other novel semiconductor materials may replace or supplement silicon, offering better performance, lower power consumption, and increased functionality.
It's never too late to start investing, but starting in your late 60s will impact the options you have.
Expect Nvidia's stock to keep delivering solid gains
Nvidia delivered $12.96 per share in earnings in fiscal 2024. As the chart below tells us, analysts have significantly raised their earnings growth expectations.
Nvidia stock is not a buy right now. However, if the stock climbs above its flat base, it would be a buy. A stronger rebound from the 10-week line also would put Nvidia in a buy zone.
In contrast, the riskiest ETF in the Morningstar database, ProShares Ultra VIX Short-term Futures Fund (UVXY), has a three-year standard deviation of 132.9. The fund, of course, doesn't invest in stocks. It invests in volatility itself, as measured by the so-called Fear Index: The short-term CBOE VIX index.
IShares Semiconductor ETF holds a Zacks ETF Rank of 1 (Strong Buy), which is based on expected asset class return, expense ratio, and momentum, among other factors. Because of this, SOXX is an excellent option for investors seeking exposure to the Technology ETFs segment of the market.
SPDR S&P Semiconductor ETF is an excellent option for investors seeking to outperform the Technology ETFs segment of the market. There are other ETFs in the space which investors could consider as well.
Semiconductor Equipment Sales by Application
Foundry and logic equipment investments are projected to increase 15% in 2025 to $63.3 billion, driven by increased capacity expansion purchases and the introduction of new device architectures.
How much will the semiconductor market be worth in 2030?
Semiconductor Market Overview:
The Semiconductor Market size is estimated to reach $990 billion by 2030, growing at a CAGR of 7.1% during the forecast period 2023-2030.
Is the semiconductor crisis finally over? Some chip shortages could remain through 2023 and into 2024, though supply of semiconductors and raw materials will generally improve in the auto sector.
SOXX - Volatility Comparison. The current volatility for VanEck Vectors Semiconductor ETF (SMH) is 6.49%, while iShares PHLX Semiconductor ETF (SOXX) has a volatility of 7.09%. This indicates that SMH experiences smaller price fluctuations and is considered to be less risky than SOXX based on this measure.
Is SMH Stock a Buy, According to Analysts? Turning to Wall Street, SMH earns a Strong Buy consensus rating based on 21 Buys, five Holds, and zero Sell ratings assigned in the past three months. The average SMH stock price target of $223.74 implies 8.0% upside potential from current levels.
But to be clear, Ramsey's all in favor of using ETFs when used properly. For investors who can use ETFs as part of a long-term, buy-and-hold investment program, rather than as trading vehicles, Ramsey has nothing bad to say about them.
