iShares Semiconductor ETF: Bull vs. Bear

Over the last five years, the S&P 500 has more than doubled with a 116% total return. The technology sector -- led by such companies as Nvidia, Microsoft, Apple, Broadcom, and Oracle -- is up even more at 160%. But the semiconductor industry within the tech sector has done even better.

The iShares Semiconductor ETF (NASDAQ: SOXX) is up a staggering 191% over the last five years. There's a lot more to the fund's success than its exposure to well-known names like Nvidia, Broadcom, and Advanced Micro Devices.

These two Motley Fool contributors discuss why the exchange-traded fund (ETF) may still be a good buy even after its massive run-up, as well as reasons to be cautious when approaching red-hot chip stocks at all-time highs.

Image source: Getty Images.

A role player in the age of AI

Daniel Foelber: The iShares Semiconductor ETF offers exposure to semiconductor designers, manufacturers, and equipment suppliers that are underrepresented by technology sector ETFs and many growth ETFs.

Data source: iShares by BlackRock.

As you can see in the table, the iShares Semiconductor ETF holds meaningful positions in companies that are underrepresented in the iShares U.S. Technology ETF. And while Nvidia and Broadcom make up just shy of 20% of the iShares S&P 500 Growth ETF, the other eight semiconductor stocks in the table, including AMD, are absent from the iShares S&P 500 Growth ETF.

A common issue with growth ETFs is that they tend to concentrate heavily on a handful of industry-leading names. The iShares Semiconductor ETF doesn't have that issue. It's an ideal choice for investors looking for exposure to the entire semiconductor value chain. Artificial intelligence (AI) is getting a lot of attention, but it's just one use case of semiconductors.

For example, Qualcomm's Snapdragon processors are used in many Android devices that run Alphabet's software. AI is Micron's fastest-growing segment, but PC and mobile devices are still the primary use cases for its memory chips. Texas Instruments makes analog and embedded semiconductors that are used in consumer electronics, automotive, healthcare applications, and more.

Fabrication plants operated by Taiwan Semiconductor Manufacturing include equipment made by companies like Lam Research, Applied Materials, ASML Holding, and KLA. Combined, these five companies make up 22.6% of the iShares Semiconductor ETF. But Taiwan Semi and ASML are absent from the iShares U.S. Technology ETF because they aren't U.S. companies. And Lam Research, Applied Materials, and KLA combined only make up less than 4% of the iShares U.S. Technology ETF.

In sum, the iShares Semiconductor ETF is a great buy for investors looking for an ETF with exposure to the integrated semiconductor value chain rather than just a few popular names.

Even chip lovers should think twice in this economy

Anders Bylund: Buying the iShares Semiconductor ETF is a bold bet on a very specific high-growth industry. I'm usually all for that type of targeted investment. Things are different in the fall of 2025, though.

I still think of the AI boom as a positive market force. It's not a bubble, and the chip stocks that have soared due to great AI-related sales in the last three years have earned their lofty valuations. At the same time, even legendary bull runs usually have a couple of sharp price corrections along the way. That's particularly true when the bulls are racing in the middle of a shaky global economy.

On that note, the iShares Semiconductor ETF is too narrowly focused for my taste in this economy. I mean, even the classic S&P 500 funds look too concentrated since 27.8% of their total value comes from the top five holdings (including semiconductor king Nvidia in the top spot, of course). The iShares Semiconductor ETF takes this focus one step further. It holds just 30 stocks, and the top five names add up to 33.6% of the portfolio's assets under management (AUM).

Again, I'm usually fine with sector-specific ETFs. This just doesn't look like a good time to load up on this richly valued ETF. The ETF trades at a P/E ratio of 37 with a meager 0.7% dividend yield and a lofty beta value of 1.6. In other words, it's both expensive and volatile. I'd much rather put my investable cash to work in a tried-and-true market-wide tracker like the Vanguard S&P 500 ETF right now.

I will surely consider hyper-targeted ETFs like the iShares Semiconductor ETF again someday. The same AI boom will probably still be in full force when I do. I just need the economy to calm down before I can commit to a swaggering AI-chip fund again. For now, I'm more interested in risk management.

Anders Bylund has positions in Alphabet, Intel, Micron Technology, Nvidia, and Vanguard S&P 500 ETF. Daniel Foelber has positions in ASML and Nvidia and has the following options: short November 2025 $820 calls on ASML. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Alphabet, Apple, Applied Materials, Intel, Lam Research, Microsoft, Nvidia, Oracle, Qualcomm, Taiwan Semiconductor Manufacturing, Texas Instruments, Vanguard S&P 500 ETF, and iShares Trust-iShares Semiconductor ETF. The Motley Fool recommends Broadcom and Marvell Technology and recommends the following options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short November 2025 $21 puts on Intel. The Motley Fool has a disclosure policy.