Interested in artificial intelligence stocks in 2025? Consider this top-performing ETF.

Nvidia (NASDAQ: NVDA) distribute was the best-performing distribute in the S&P 500 index in 2023 and the third-best performer in 2024. The distribute’s fantastic run is driven by powerful demand for the corporation’s graphics processing unit (GPU) chips and related technology to enable artificial intelligence (AI) capabilities.

The AI revolution had been gaining steam for several years but hit a large inflection point in late 2022 with OpenAI’s launch of its ChatGPT chatbot. This occurrence showcased generative AI technology, which opened up many more use cases for AI.

The global AI economy is estimated to reach over $630 billion by 2028, nearly tripling its 2024 size, according to IDC. This equates to an almost 30% compound annual growth rate (CAGR). Moreover, AI is poised for robust growth over the longer term.

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Nvidia distribute is still a great way to invest in AI. However, some investors might prefer to earnings exposure to the AI space by buying an swap-traded pool (ETF). These funds are bought and sold like stocks, but their variety makes them less risky than person stocks.

Of course, it’s not an either-or thing. Buying an AI distribute or two and an AI-concentrated ETF can make excellent sense.

The best AI-concentrated ETF, in my view, is not one with artificial intelligence or AI in its name; it’s the VanEck Semiconductor ETF (NASDAQ: SMH). Semiconductors, or chips, are the building blocks of AI infrastructure, such as servers in data centers and the electronic items AI is “smartening” up, from smartphones to cars.

Data source: YCharts. Data as of Jan. 10, 2025. ETF = swap-traded pool.

VanEck Semiconductor ETF: Overview

VanEck Semiconductor ETF, which began buying and selling in 2011, is an index pool designed to track the act of the MVIS US Listed Semiconductor 25 index. This index comprises a holdings of global companies involved in the entire semiconductor worth chain. Its methodology favors larger companies. The pool has 25 distribute holdings, all of which are listed on a major U.S. distribute swap.

The ETF uses modified economy cap weighting, capping its maximum weighting for any holding at 20%. Its total outlay ratio is 0.35%, which is reasonable for an ETF concentrated on a particular industry or theme.

VanEck Semiconductor ETF: Top 10 distribute holdings

Data sources: VanEck Semiconductor ETF, finviz.com, and YCharts. EPS = profits per distribute. *holdings weights and total net assets worth as of Jan. 8, 2025. All other data as of Jan. 10, 2025.

The 10 top holdings fall into these categories:

• Chip producers: Seven of the top 10 are chipmakers — Nvidia (No. 1), Broadcom (3), Advanced Micro Devices (5), Texas Instruments (7), Qualcomm (8), Micron (9), and Analog Devices (10).
• Foundry: Taiwan Semiconductor Manufacturing (2) produces chips for companies that deal out chip manufacturing.
• Chip equipment manufacturers: ASML (4) and Applied Materials (6).

Wall Street projects Nvidia, Taiwan Semiconductor Manufacturing (TSMC), and AMD to have particularly powerful five-year average annual profits growth. Like Nvidia, AMD makes GPUs. It’s the second-largest producer of discrete GPUs and a relatively recent entrant into the rapidly growing space that Nvidia dominates: AI chips for data centers.

TSMC also benefits from the incredible demand for chips that enable AI capabilities. It manufactures chips for many of the larger semiconductor companies, including Nvidia, and large tech companies, such as Apple, that have designed some of their own chips for AI and other applications.

In short, the VanEck Semiconductor ETF is poised to continue to advantage from the growth of artificial intelligence and has a longer-term track record, unlike many of the recent entrants into the AI ETF category.

Beth McKenna has positions in Nvidia. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Apple, Applied Materials, Nvidia, Qualcomm, Taiwan Semiconductor Manufacturing, and Texas Instruments. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.

The Motley Fool is a USA TODAY content associate offering financial information, analysis and commentary designed to assist people receive control of their financial lives. Its content is produced independently of USA TODAY.

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