Nvidia’s Rise to Becoming the World’s Most Valuable Company Sparks Reappraisal of Semiconductor ETFs
AI-summarised brief · reviewed before publication
Nvidia Corp. has made history by surpassing Microsoft to become the world's most valuable company, with a market capitalization crossing $3.7 trillion. As the chipmaker solidifies its position as the foundation of the AI era, certain segments of Wall Street are lagging behind, including semiconductor ETFs. Despite Nvidia's remarkable rise, some of the largest ETFs that follow the semiconductor space are still predominantly weighted toward legacy chipmakers. These legacy chipmakers, which dominated the PC and mobile era, are now threatened by the AI revolution. The VanEck Semiconductor ETF (SMH) and the iShares Semiconductor ETF (SOXX) are two of the largest ETFs in the space. While they have seen strong returns, largely due to Nvidia's outperformance, their portfolios still allocate a significant amount of weight to companies like Intel, Texas Instruments, and Qualcomm. The VanEck Semiconductor ETF, for instance, has Nvidia at about 20.5% of its portfolio, while Intel holds on to a healthy 3.7% despite its struggles in the GPU segment. Similarly, the iShares Semiconductor ETF has Nvidia as a top holding, but legacy companies comprise a larger-than-anticipated portion of its portfolio. The irony lies in the fact that Nvidia's success is largely fueled by hyperscalers such as Microsoft, Amazon, Meta, and Alphabet, which are building out AI infrastructure at a rapid pace. This demand is, in turn, driving interest in AI-focused semiconductors, including GPUs, networking processors, model-training memory, optimized memory, and custom-made AI chips manufactured by companies like Broadcom and Marvell Technology. However, most broad semiconductor ETFs still reflect an outdated vision of the industry, leaving investors to wonder if it's time for a rethink.
