Investing in semiconductors is considered a strategic way to capitalize on the artificial intelligence boom, according to VanEck’s CEO, Jan van Eck. He believes that semiconductors are at the core of the AI trade, making them a lucrative investment opportunity. VanEck’s Semiconductor ETF (SMH) has shown strong performance this year, with a 21% increase in value. Despite a recent drop in the market, van Eck remains optimistic about the long-term prospects of semiconductor companies. He suggests that the high demand for AI chips could lead to sustained profitability for the sector, as they transition from a cyclical to a growth-oriented business.
One of the top holdings in the SMH fund is Nvidia, whose shares have surged by nearly 70% this year due to increased demand for its AI processors. However, the stock has seen a 7% decline since the beginning of the month. Van Eck believes that this weakness is temporary and that the semiconductor industry is poised for more durable returns in the future. He highlights the shift in business dynamics, with semiconductor companies now enjoying more recurring revenue streams and higher profit margins. This transition has led to increased investor interest in the sector, as the potential for long-term growth becomes more evident.
ETF Action founding partner, Mike Akins, agrees with van Eck’s assessment and sees opportunities for investors in the semiconductor space. Akins points out that top chipmakers have limited competition for their products, giving them a competitive advantage. This high barrier to entry enables semiconductor companies to maintain control over pricing, which could lead to sustainable growth. Akins warns investors to keep an eye on semiconductor fund flows as a potential indicator of future performance. He views fund flows as a contrarian indicator, with depressed flows signaling a potential buying opportunity, while extended flows may indicate a need to reduce exposure to the sector.
Despite the recent market volatility and fluctuations in semiconductor stock prices, both VanEck and Akins remain optimistic about the long-term prospects of the semiconductor industry. The increasing demand for AI chips and the transition to a growth-oriented business model are seen as positive drivers for future profitability. Van Eck believes that semiconductor companies with strong fundamentals and solid business models will continue to thrive in the evolving market environment. Akins emphasizes the importance of monitoring fund flows as a barometer for investor sentiment and market trends. Overall, investing in semiconductors is regarded as a strategic way to capitalize on the artificial intelligence boom and benefit from the growth potential of the sector.
