Semiconductors: How can you invest in them?

Various sectors are becoming increasingly reliant on semiconductors for their business activities. They have allowed for continued milestones in efficiency and development of electronic devices and systems that smoothen business operations and overcome previous limitations.

Semiconductors have several advantages over pre-existing technology including miniaturisation (tiny size and ability to pack billions of transistors into a single integrated circuit chip) that wasn’t available with vacuum tubes and mechanical switches. This leads to energy efficiency, reliable, fast, integration (multiple functions on a single chip), and the ability to be useful across multiple sectors.

A quick reminder

Semiconductors are materials that can carry electricity under certain conditions but not as easily as conductors like metals. They are crucial parts of electronic devices like transistors and computer chips due to their special ability to control and amplify electrical signals. Because they make it possible to regulate and control electrical currents for a variety of applications, semiconductors are essential to modern technology.

The growth of the sector

If you’re involved in the investing world in any capacity, you are aware of one of the worlds best performing stocks this year to date, NVIDIA (NASDAQ: NVDA). Nvidia is a world leading artificial intelligence computing company that, like many fellow companies is experiencing astronomical price gains due to the AI revolution and the ability to store and process ever-growing amounts of data becoming a necessity for many businesses and individuals. With the acceleration of digitalisation on lives and businesses, sales of semiconductors grew by approx 20% to almost $600b in 2021. 2022 told a similar story, with approximately $599b. There is an 11.2% projected decline for 2023 according to Gartner, Inc.

Some ETF’s available within Australia

Vanguard MSCI Index International Shares ETF (ASX: VGS) (management fee 0.18%p.a., $25.4b in assets under management)
ETFS Semiconductor ETF (ASX: SEMI) (management fee 0.57%, $54.3 million assets under management.)

Some ETF’s available in the USA

VanEck Semiconductor ETF (SMH) 0.35%

Top Holdings: Nvidia Corp. (NVDA), TSM and Broadcom Inc. (AVGO)

iShares Semiconductor ETF (SOXX) 0.35%

Top Holdings: Nvidia, Broadcom, Advanced Micro Devices Inc. (AMD) and Intel Corp. (INTC)

First Trust Nasdaq Semiconductor ETF (FTXL) 0.6%

Top Holdings: Tracks the Nasdaq U.S. smart semiconductor index with more screeners. For inclusion in the FTXL, a semiconductor stock is ranked based on its trialling 12-month return on assets. The bottom quartile is eliminated and the remaining 30-50 stocks are weighted based on their trailing 12 month cash flow, with a minimum weight of 0.5% and a maximum weight of 8% to ensure diversification.

SPDR S&P Semiconductor ETF (XSD) 0.35%

People may consider XSD to reduce concentration risk. This ETF tracks the S&P semiconductor select industry index. Delivers more observable exposure to small and mid cap semiconductor stocks. NVIDIA only accounts for 3.4% of the 38 holdings. Intel and Broadcom sit at roughly 3%

Direxion Daily Semiconductor Bull 3X Shares (SOXL) 0.94%

Aims to deliver a daily return three times that of the ICE semiconductor index, the index tracked by SOXX. Should the index rise by 1% in a day, the SOXL will return 3% and vice versa. Intended to be a short term trading tool.

Direxion Daily Semiconductor Bear 3X Shares (SOXS) 1.02%

Inverse of the SOXL, if the ICE index falls by 1%, the SOXS should rise by 3% that day and vice versa. Intended to be a short term trading tool.

GraniteShares 1.5x Long NVDA Daily ETF (NVDL) 1.15%

Leveraged single stock (a stock that allows for a heightened profit or loss versus individual stock investing.) This ETF aims to deliver 1.5x the daily performance of Nvidia.

Individual semiconductor stocks

NVIDIA Year to Date: (+314.83) (+219.93%)
Qualcomm Year to Date (+5.11) (+4.77%)
Marvell Technology Year to Date (+19.06) (+52.96%)
Intel Corporation Year to Date (+9.70) (+36.29)

Which companies are benefiting from the rise in semiconductors?

Automakers such as Tesla, Ford and General motors are investing in semiconductor technology and increasingly rely on them for advanced driver assistance systems. NVIDIA and OpenAI will continue to benefit from advancements in machine learning and new developments in AI. Telecom giants like AT&T, Verizon, Huawei for telecom infrastructure.

Want more?

If you want to learn more about semiconductors, check out this podcast we did back in 2021, at the start of the rise of semiconductors.

Expert: Are Semiconductors the Picks & Shovels Play for the Tech Industry | ETF Securities