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Sector Analysis2025-09-16
AI Semiconductor ETF Investment Surges: Sector Outlook Analysis Ahead of Nvidia Earnings
Capital inflows into AI and semiconductor sector ETFs are accelerating, drawing attention to the performance of related ETFs. Ahead of earnings reports from major semiconductor companies including Nvidia, we examine sector-specific investment strategies.
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As the artificial intelligence (AI) revolution gains full momentum, investor interest in the semiconductor sector is surging. In particular, the rapid growth in Nvidia's data center revenue and the explosion in AI chip demand are driving strength in semiconductor ETFs. Continued inflows into major semiconductor ETFs such as SMH, SOXX, and XSD have significantly increased the weight of the semiconductor sector within tech portfolios. However, concerns over high valuations and geopolitical risks must also be considered at this juncture. A strategic approach using a portfolio calculator to set an appropriate allocation to the semiconductor sector and diversify related risks is essential.
Characteristics and Holdings Analysis of Major Semiconductor ETFs
Looking at the characteristics of representative semiconductor ETFs: SMH (VanEck Semiconductor ETF) comprises 25 holdings, with Nvidia, Taiwan Semiconductor, and AMD making up major weightings. SOXX (iShares Semiconductor ETF) tracks the Philadelphia Semiconductor Index with investments in 30 holdings. XSD (SPDR S&P Semiconductor ETF) uses an equal-weight approach to reduce large-cap concentration. Nvidia accounts for 15-25% of each ETF, creating individual company risk. For international diversification, semiconductor exposure through ASHR (China A-Shares ETF) or EWT (Taiwan ETF) can be considered. Using an asset allocation calculator to determine the appropriate allocation between US and Asian semiconductor companies and diversify individual company risk is important.
Rising AI Data Center Demand and Semiconductor Supply Chain Changes
The explosive spread of generative AI is driving surging data center demand, with GPU, HBM memory, and networking chip needs skyrocketing. As the shortage of Nvidia's H100 and A100 chips persists, related suppliers are also benefiting. SK Hynix and Samsung Electronics' HBM memory, along with TSMC's advanced foundry services, play key roles in the supply chain. AMD's MI300 series and Intel's Gaudi chips are gaining attention as alternatives to Nvidia, intensifying competition. While these changes have a positive impact across the semiconductor value chain, margin pressure from intensifying competition among suppliers is also anticipated. Diversifying investments across each stage of the AI semiconductor value chain through a portfolio calculator to reduce dependency on any single company or technology is an effective strategy.
Geopolitical Risks and Semiconductor Supply Chain Diversification Trends
As the US-China tech rivalry intensifies, geopolitical risks in the semiconductor industry are growing. Strengthened US export restrictions on semiconductors to China are constraining the growth of semiconductor companies in China. This is accelerating the restructuring of global semiconductor supply chains, with active relocation of production bases to India, Vietnam, and Mexico. Investments in US-based foundries are also expanding to reduce dependence on Taiwan's TSMC. In this environment, investors should avoid concentration in specific regions and manage risk through geographic diversification. Using a rebalancing calculator to maintain appropriate regional allocations across US, Asian, and European semiconductor companies, and preventing sudden portfolio shifts due to geopolitical events, is critical.
Semiconductor Cycle and Valuation Considerations
The semiconductor industry has traditionally followed a 3-4 year cycle, but there is speculation that the current upcycle may be extended due to AI demand. However, major semiconductor ETFs currently trade at P/E ratios of 25-35x, well above historical averages, creating valuation concerns. Nvidia's P/E exceeding 70x continues to fuel overvaluation debates. Memory semiconductors are seeing price increases as inventory adjustments complete, but downward price pressure from capacity additions also persists. Investors should not focus solely on the AI theme but must comprehensively consider each company's fundamentals and valuation. Using an asset allocation calculator to appropriately blend high-growth semiconductor companies with mature semiconductor companies offering stable dividends is a desirable strategy for simultaneously pursuing growth and stability.
Risk Management Strategies When Investing in Semiconductor ETFs
Let's examine the key risks and management approaches to consider when investing in the semiconductor sector. First, high volatility: semiconductor ETFs exhibit more than twice the volatility of general tech ETFs, so investing at 5-15% of the total portfolio is appropriate. Second, concentration risk: major semiconductor ETFs concentrate over 60% in the top 10 holdings, creating significant individual company risk. Third, cycle risk: a deterioration in the semiconductor industry can cause ETF values to plunge sharply, necessitating balance with defensive stocks. Fourth, currency risk: high weighting in Asian semiconductor companies can create additional downward pressure when the dollar strengthens. To manage these risks, regularly using a rebalancing calculator to adjust semiconductor sector weightings within target ranges, and mitigating concentration risk through diversification across various tech sector ETFs, is important.
Conclusion
The growth opportunities in the semiconductor sector brought by the AI revolution are clear, but high valuations and various risks must also be considered. Rather than simply concentrating investments around Nvidia, capturing the growth potential of the AI theme safely through diversified investment across the semiconductor value chain and appropriate position sizing is recommended. Maintaining a robust investment strategy that benefits from long-term technological advancement while remaining resilient to short-term volatility is the key to success.
