Investing in semiconductors could be the most effective way to take advantage of the artificial intelligence boom, according to VanEck’s CEO.
“Semiconductors have become the heart of the AI business,” Jan van Eck told CNBC’s “ETF Edge” this week.
That of his company VanEck Semiconductor ETF (SMH), which tracks 25 of the nation’s largest chipmakers, is up 21% this year as of Wednesday’s close. However, the SMH has fallen almost 6% this month, driven by Intel, AMD And On semiconductors.
The main title of the fund, Nvidiahas seen its shares jump nearly 70% this year amid growing demand for its AI processors, but it is also down 7% month to date.
Van Eck suggests that this weakness is temporary. He says high interest in AI chips could enable the group to achieve more sustainable returns.
“They’ve been re-evaluated from a highly cyclical business with short product lives to part of the growth business, and they have more recurring revenue, so they can just maintain high profitability even despite some things happening in the short term,” van Well said.
Mike Akins, founding partner of ETF Action, also sees opportunities for investors. He believes limited competition for some of the major chipmakers’ products could support the group.
“You have a high moat and they control that price point,” he said in the same interview. “Until there is a situation where competition increases significantly in this area, where there is some pressure on pricing, it will be difficult to see this trade disappear.”
Still, Akins advises investors to pay attention to semiconductor fund flows as a barometer of future performance.
“We often advise our clients to view flows as a contrarian indicator. When flows get really depressed, that potentially presents a buying opportunity, and vice versa. As flows really expand, it Maybe it’s time to cut back a little.”
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