Investing in semiconductors may be the most effective way to play the artificial intelligence boom, according to VanEck’s CEO.
“Semiconductors have become the heart of the AI trade,” Jan van Eck said on CNBC’s ETF Edge this week.
His company VanEck Semiconductor ETF (SMH), which tracks the performance of the nation’s 25 largest chipmakers, was up 21% this year as of Wednesday’s close. However, SMH fell almost 6% this month, resulting in a fall of Intel, AMD And About semiconductors.
The fund’s largest holding, NvidiaIts shares are up nearly 70% this year on rising demand for artificial intelligence processors, but they are also down 7% so far this month.
Van Eck suggests that this weakness is temporary. He argues that strong interest in artificial intelligence chips could provide the group with more stable profits.
“They have been revalued from being a highly cyclical business with short product life to being part of a growing trade and they have more recurring revenue so they can just remain highly profitable even with some near-term challenges,” van Eck said.
ETF Action founding partner Mike Akins also sees opportunities for investors. He believes limited competition from products from some leading chip makers could support the group.
“You have a high moat, and they control that pricing point,” he said in the same interview. “Until you get into a situation where competition in this area increases significantly and you can apply some price pressure, it’s hard to expect this trade to go away.”
Still, Akins advises investors to pay attention to semiconductor fund flows as a barometer of future performance.
“We often caution our clients to think of flows almost as a contrarian indicator. When flows become truly depressed, this potentially presents an opportunity to buy, and vice versa. Since the flows are really expanding, it might be time to cut them back a bit.”
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