Nvidia ETF Proxy Has AI Inroads

Investors looking for a “story stock” need not look much further than semiconductor giant Nvidia (NVDA). Proving that lofty valuations aren’t detriments to the upside, the stock is higher by 46.72% year-to-date. Additionally, it is now the third-largest U.S.-based company by market capitalization.

All that despite a scintillating 2023 run that some experts argued made Nvidia shares vulnerable to a pullback. As of the February 15 close, the stock resided north of $726 a share. However, that may be restrictive territory for some capital-constrained investors. Fortunately, exchange traded funds such as the VanEck Semiconductor ETF (SMH) can function as Nvidia proxies.

Firstly, the $14.94 billion SMH has credibility on this front. As of February 14, Nvidia represented a quarter of the ETF’s weight or more than double the allocation commanded by the fund’s second-largest component. Of the nearly 380 ETFs with some exposure to Nvidia, SMH’s percentage allocated to the stock is the largest.

AI Could Propel Nvidia, SMH

As has been widely documented, Nvidia is one of the primary names benefiting from the generative artificial intelligence (AI) boom. Importantly, that theme is just getting started, indicating that SMH could be a winning long-term bet.

“The soaring increase in spending on artificial intelligence has exceeded expectations, and tangible results are already being seen,” noted Antonio Ernesto Di Giacomo, analyst at XS.com. “Nvidia, a leading manufacturer of advanced chips for enabling next-generation AI services, is experiencing remarkable growth evidenced by the impressive market performance of its shares. Its central role in this emerging trend is driving its success. And positioning it as a key player in today’s technology landscape.”

For SMH investors that are looking for near-term catalysts, Nvidia reports quarterly results on Wednesday, Feb. 21 after the close of U.S. markets. Wall Street expects the company to report earnings per share of $4.54 on sales of $20.19 billion.