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VanEck Vectors Semiconductor ETF (SMH - Free Report), which targets the U.S. semiconductor sector, has surged 51.5% this year, becoming the top-performing ETF of the first half.

Although most of the stocks in SMH’s portfolio delivered strong returns this year, a few have gained more than 45%. These are NVIDIA Corporation (NVDA - Free Report), Taiwan Semiconductor Manufacturing (TSM - Free Report), Micron Technology (MU - Free Report), Broadcom (AVGO - Free Report) and Qualcomm Incorporated (QCOM - Free Report).

Semiconductor stocks have led the market rally, buoyed by the artificial intelligence (AI) drive.  The expansion of AI applications holds the promise of ushering in fresh growth opportunities in the sector. According to a new report by Grand View Research, the global artificial intelligence market is expected to witness a CAGR (2024-2030) of 36.6% to reach $811.75 billion by 2030 and continue to drive the market higher.

NVIDIA, Apple (AAPL), and Microsoft (MSFT) are in a race to become the world’s most valuable company and hit a market capitalization of $4 trillion on surging enthusiasm over AI capabilities. NVIDIA has been at the forefront of building AI into its products and services.

Semiconductors have been the most important drivers of the overall growth in technology, given the use of chips in day-to-day life, from cars and electronic gadgets to planes and weapons. Demand will continue to trend higher, given increased digitization in various corners like healthcare, transport, financial systems, defense, agriculture, and retail. The rapid adoption of cutting-edge technology like cloud, Internet of Things, autonomous cars, gaming, wearables, VR headsets, drones, virtual reality devices, cryptocurrencies, 5G, and other advanced information technologies should continue to fuel growth. Further, the introduction of expensive and new-generation chips has been driving an enhancement in the product mix for semiconductors.

In its latest meeting, the Fed penciled in one rate cut this year and foresees four cuts for 2025. The central bank has altered the language in its statement, noting that there has been “modest further progress toward the committee’s 2% inflation objective.” Previously, the statement pointed to a “lack” of further progress. This signals a period of higher interest rates for a while. Tech titans have shown strong resilience amid such a scenario. And, when the Fed starts cutting rates later this year, these stocks will receive a boost. As the tech sector relies on borrowing for superior growth, it is cheaper to borrow more money for further initiatives when interest rates are low.

Let’s take a closer look at the fundamentals of SMH.

SMH in Focus
 

VanEck Vectors Semiconductor ETF offers exposure to the companies involved in semiconductor production and equipment. SMH follows the MVIS US Listed Semiconductor 25 Index, which measures the overall performance of companies involved in semiconductor production and equipment. VanEck Vectors Semiconductor ETF holds 26 stocks in its basket.

VanEck Vectors Semiconductor ETF has managed assets worth $25.6 billion and charges 35 bps in annual fees and expenses. SMH is heavily traded with a volume of 7 million shares per day and has a Zacks ETF Rank #1 (Strong Buy) with a High-risk outlook.

Best-Performing Stocks of SMH
 

NVIDIA is the worldwide leader in visual computing technologies and the inventor of graphic processing units. The stock has jumped 155.6% this year. It has an estimated growth of 106.1% for the fiscal year (ending January 2025).

NVIDIA makes up 24.9% of the assets in SMH and currently has a Zacks Rank #1. 

Taiwan Semiconductor is the world's largest dedicated integrated circuit foundry. The stock has soared 67.3% this year and accounts for a 12.8% share in the ETF.

TSM has an estimated earnings growth of 18.3% for this year and has a Zacks Rank #2 (Buy).

Micron Technology has established itself as one of the leading worldwide providers of semiconductor memory solutions. The stock makes up for 4.5% of the assets in the SMH portfolio.

Micron Technology has gained 63.5% and has an expected earnings growth rate of 120.9% for the fiscal year (ending August 2024). It has a Zacks Rank #2.

Broadcom is a premier designer, developer and global supplier of a broad range of semiconductor devices with a focus on complex digital and mixed signal complementary metal oxide semiconductor-based devices and analog III-V-based products. The stock has soared about 48.6% this year and accounts for an 8.4% share in the AVGO portfolio.

Broadcom has an estimated earnings growth rate of 12.2% for the fiscal year (ending October 2024) and a Zacks Rank #3 (Hold).

Qualcomm designs, manufactures and markets digital wireless telecom products and services based on the Code Division Multiple Access technology. The stock has risen 47% so far this year.

Qualcomm has an estimated earnings growth of 17.1% for the fiscal year (ending Sep 2024) and accounts for a 4.9% share in SMH. It has a Zacks Rank #3.

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