Semiconductor ETF SMH Near an All Time High

I’ve written a lot about the AI chip wars over on my other blog about how there’s an AI chip war happening. Intel, Nvidia, Apple, and now Microsoft are building new semiconductor chips to handle larger workloads to support AI models. President Biden’s administration released the CHIPS and Science Act in August 2022 was a way to bring more semiconductor manufacturing back onto US shores, not just for jobs but to protect our competitive advantage.

Since the signing of the Act, the VanEck Semiconductor ETF (SMH) sold off and made a bottom before turning higher, thanks to NVDA which makes up more than 19% of its core holdings. That heavy percentage of NVDA gives me a bit of pause though.

I’ve owned SMH for several years now and it’s been lagging a bit relative to my other investments. Not so now, it recently hit an all-time high! I love all-time highs because it means there is market momentum behind it.

SMH is doing well now but since its inception, it lagged a bit behind the Nasdaq composite. Now it appears to be pulling away from the Nasdaq, no thanks to NVDA.

When compared to the Technology Select Sector SPDR Fund (XLK) it’s starting to lag.

I’m beginning to like XLK better than SMH because it’s better diversified. The two big holdings of XLK are MSFT and AAPL. They make up 24 and 23% of the ETF’s holding and NVDA only 4%.

I know there are two schools of thought about diversification: one is you diverse consistently and the other is to forget diversification altogether and just be a stock picker instead.

I’m not a good stock picker in general - I do get lucky occasionally - but I do like diversification a lot. Still, I can’t deny the gains I’m getting from SMH now. It doesn’t matter what side of the fence you’re on (diversify or not), the overall moral is to take the gains and run.

So I’m running with SMH. I will likely tighten up my stops going forward since it’s trending nicely and let the market tell me when the NVDA story is over.