Key Takeaways:
The semiconductor sector’s rally, fueled by a relentless build-out of artificial intelligence infrastructure, has pushed three distinct exchange-traded funds to the forefront of investor attention. The iShares Semiconductor ETF (SOXX), the VanEck Semiconductor ETF (SMH), and the First Trust Nasdaq Semiconductor ETF (FTXL) have each posted massive gains this year, though their strategies for capturing the AI hardware supercycle differ significantly. The performance of these funds underscores a broadening of the semiconductor rally beyond just a few mega-cap names.
"The quarter was driven by accelerating demand for AI infrastructure, with Data Center now the primary driver of our revenue and earnings growth," Advanced Micro Devices (AMD) CEO Lisa Su said after the company's recent earnings report. The report confirmed the widening demand across the semiconductor supply chain, a trend that benefits all three ETFs.
AMD's Q1 2026 revenue jumped 38% year-over-year to $10.25 billion, with the Data Center segment soaring 57% to $5.78 billion. The company guided for Q2 revenue of about $11.20 billion, representing 46% year-over-year growth. These numbers validate the investment theses of SOXX, SMH, and FTXL, each of which holds AMD.
The AI infrastructure buildout is a multi-layered affair, requiring not just GPU accelerators but also CPUs, networking chips, and memory. This has created a rising tide that is lifting many boats in the semiconductor industry, not just the most prominent players. For investors, the choice between SOXX, SMH, and FTXL comes down to how they want to ride this wave.
The iShares Semiconductor ETF (SOXX) offers a balanced approach to investing in the U.S. semiconductor industry. By tracking the NYSE Semiconductor Index, SOXX holds about 30 U.S.-listed companies, with a modified market-cap-weighting scheme that prevents any single stock from dominating the fund. This provides broad exposure to the entire semiconductor supply chain, from chip designers like Nvidia and AMD to equipment makers like Applied Materials and Lam Research.
SOXX is up about 60% year-to-date and has returned 158% over the past year. Its expense ratio is 0.34%. The fund's strength lies in its diversification. By capping individual stock exposure, SOXX reduces the risk of a downturn in a single name. This makes it a suitable core holding for long-term investors who want broad exposure to the semiconductor sector.
The VanEck Semiconductor ETF (SMH) takes a more concentrated approach. Tracking the MVIS US Listed Semiconductor 25 Index, SMH has heavy weightings in AI leaders like Nvidia and Taiwan Semiconductor Manufacturing Company (TSMC). This concentration gives investors more direct exposure to the companies at the forefront of the AI boom.
SMH is up about 45% year-to-date and has returned 141% over the past year. A key feature of SMH is its inclusion of foreign-domiciled companies through American Depositary Receipts (ADRs), such as TSMC and ASML. This gives investors exposure to critical parts of the global semiconductor supply chain that are not available in SOXX. The trade-off for this concentrated exposure is higher volatility.
The First Trust Nasdaq Semiconductor ETF (FTXL) has been the standout performer of the three, surging 74% year-to-date. FTXL uses a "smart-beta" strategy, weighting its holdings based on factors like volatility, value, and growth, rather than market cap. This approach has led to an underweighting of mega-cap names and a tilt towards mid-cap and second-tier semiconductor companies.
FTXL's outperformance suggests that the next leg of the semiconductor rally may be driven by these secondary beneficiaries. The fund offers a way to invest in the broadening of the AI hardware cycle. However, FTXL is the smallest of the three ETFs by assets and is the least liquid, which can result in wider bid-ask spreads.
The strong performance of these ETFs, particularly the factor-weighted FTXL, indicates that the AI hardware boom is expanding beyond the initial phase of GPU dominance. As AI models become more complex, the demand for other components, such as high-performance CPUs, is also increasing. This trend is further supported by the optimistic forecast from Arm Holdings, which designs the architecture for many of the world's CPUs. Arm recently projected strong first-quarter revenue, citing the growing adoption of its chip technology in AI data centers. This suggests a long runway for growth for the entire semiconductor ecosystem.
This article is for informational purposes only and does not constitute investment advice.
