Semiconductor stocks have made investors’ fortunes over the past four years, and by extension, semiconductor ETFs turned into the best-performing names. Names like the VanEck Semiconductor ETF (NASDAQ:SMH), Corgi Lithography & Semiconductor Photonics ETF (BATS:EUV), and the iShares MSCI Taiwan ETF (NYSEARCA:EWT) delivered solid gains earlier this year, only to take a breather in the past few weeks.
Considering the broader AI sector is still showing no sign of slowing down, the rally is unlikely to end just yet. If you read the earnings calls from major companies or even private AI companies like Anthropic or OpenAI, it’ll be obvious that they are all compute-constrained.
The only way out is to keep building more data centers. Thus, semiconductor stocks seem well-positioned to recover and keep rallying. It’s not a smart idea to doubt this rally until we see major companies announce capex reductions.
With that in mind, here’s why these three ETFs are worth buying the dip on.
VanEck Semiconductor ETF (SMH)
The VanEck Semiconductor ETF is the most popular one for a reason. It is a low-cost passive market-cap-weighted fund that tracks the 25 largest U.S.-listed semiconductor companies. It includes international names listed in the U.S. too.
It’s very simple, and your holdings grow with the broader semiconductor sector. The biggest con here is that since SMH is based on market cap, it gets top-heavy. Nvidia (NASDAQ:NVDA | NVDA Price Prediction) alone constitutes 17.55% of the ETF, with Taiwan Semiconductor (NYSE:TSM) at 9.3%.
I wouldn’t be too scared of this top-heavy approach. The semiconductor sector moves in tandem, and if Nvidia does sneeze, the rest of the sector is sure to catch a cold. Holding NVDA stock at 17.55% is not an issue if you are bullish on the entire sector, because it won’t go down on its own.
SMH is down 13.2% in the past month, though it is up 44% in the past six months. I expect a recovery to take it above $700 this year, minus a black swan event.
SMH’s expense ratio is 0.35%, or $35 per $10,000.
Corgi Lithography & Semiconductor Photonics ETF (EUV)
You’ve most likely not heard of this ETF, and that’s because it’s very new. The Corgi Lithography & Semiconductor Photonics ETF launched earlier this May and specifically targets the “picks and shovels” of the semiconductor sector instead of tracking the largest names.
Buying this will give you much-needed diversification within the semiconductor sector and exposure to businesses that aren’t big on paper but have significant upside potential because of their importance in the semiconductor supply chain.
It has 41 holdings, and they overwhelmingly include semiconductor stocks that are more on the manufacturing end of the spectrum. TSMC is the top holding at 9.61%. It manufactures the vast majority of AI chips. ASML (NASDAQ:ASML) is the second-biggest holding at 8.76%, and it holds a monopoly in complex photolithography machines. Without these machines, it wouldn’t be possible to make advanced chips.
You’ll see lots of other names further down the line that have delivered explosive gains recently. Unlike SMH, this ETF lets you capture a broader slice of the semiconductor universe, which in turn means a selloff in semiconductor designers won’t lead to your portfolio tumbling.
EUV comes with a 0.35% expense ratio, the same as SMH.
iShares MSCI Taiwan ETF (EWT)
Investors looking at memory are going after the iShares MSCI South Korea ETF (NYSEARCA:EWY). If you are looking at semiconductors, buying the iShares MSCI Taiwan ETF instead is a good idea. TSMC isn’t the only big semiconductor player in the country. There are dozens of semiconductor companies, each with its own network of smaller suppliers worth investing in.
EWT is up 70% in the past year, and you’re not buying into a significant dip here since it’s only down 10% over the past month. That said, if you’re confident about the AI rally, buying in now can still get you some solid gains down the line. The 2.94% dividend yield is the icing on the cake.
Your expense ratio here is 0.59%, or $59 per $10,000.
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