Ride the AI Boom Through Semiconductors, Its Pick and Shovel Makers

07 August 2023

Martijn Rozemuller

CEO – Europe

When Nvidia, the US semiconductor company, hit a market capitalization of USD 1 trillion on 30 May 2023¹, it joined a small group of elite tech stocks such as Apple, Amazon, Microsoft and Amazon. Propelled by the fact that its advanced chips are essential for powering the new generation of AI-related tech – from ChatGPT to autonomous driving – its share price has tripled this year.

Yet other semiconductor companies, too, have much to gain from the AI fervor currently sweeping the business world. For example, the Asian chipmakers Taiwan Semiconductor Manufacturing Company and Samsung supply most of the world’s advanced chips.

For anyone looking to ride an investment megatrend, it’s often said that a lower risk way to do so is through the ‘pick and shovel makers’ – the companies that supply the companies making the end product. And for generative AI, this undoubtedly means semiconductor manufacturers.

While their share prices have already performed exceptionally well in 2023 (see price chart for the VanEck Semiconductor UCITS ETF), they offer a long-term way to invest in the theme without betting on the fortunes of a single AI platform.

Net Asset Value of VanEck Semiconductor UCITS ETF Jan 2023 – July 2023, USD

Source: VanEck.

Beyond AI, though, chips are the lifeblood of the digital transition. Without them there will be no highly automated cars, internet of things, supercomputers, quantum computing and automated factories of the future, not to speak of the new generation of AI chatbots. They are also key for decarbonisation, which rests on electrification and naturally involves semiconductors.

Turning to military and space equipment, surveillance, communication and navigation systems depend on chips, making them crucial for national security. They are vital components in satellites, enabling digital communication and Earth observation, including monitoring climate change.

Illustrating just how critical semiconductors have become, all three major economic blocs –Europe, the US and China – are pushing to become self-sufficient, aiming to curb dependence on foreign supply chains. This drive follows the Covid-19 pandemic exposing vulnerabilities in supply, as well as the emphasis on near-shoring in recent years. Notably, the typical semiconductor production process involves steps in more than five countries and three or more shipments across the globe.

Government Announces Support Packages to the Semiconductor Industry, m USD

Source: VanEck.

Of course, this drive for self-sufficiency is likely to lead to greater chip manufacturing capacity, which could undermine profit margins. Yet demand is also likely to be strong, given not just the likely generative AI revolution but also the fact that chips are now essential for modern technology and even the electrification of the global economy over the next 25 years.

It's hard to argue that semiconductor stocks are cheap after 2023’s rally. But if anyone wants to invest in the AI boom, then its pick and shovel makers accessible through our ETF could offer a lower risk way of doing so. Investing in ETFs involves several risks. Please read the Prospectus and the KID before investing in an ETF.

¹ Source: NASDAQ.

Important Disclosures

For informational and advertising purposes only.

This information originates from VanEck (Europe) GmbH which has been appointed as distributor of VanEck products in Europe by the Management Company VanEck Asset Management B.V., incorporated under Dutch law and registered with the Dutch Authority for the Financial Markets (AFM). VanEck (Europe) GmbH with registered address at Kreuznacher Str. 30, 60486 Frankfurt, Germany, is a financial services provider regulated by the Federal Financial Supervisory Authority in Germany (BaFin). The information is intended only to provide general and preliminary information to investors and shall not be construed as investment, legal or tax advice. VanEck (Europe) GmbH and its associated and affiliated companies (together “VanEck”) assume no liability with regards to any investment, divestment or retention decision taken by the investor on the basis of this information. The views and opinions expressed are those of the author(s) but not necessarily those of VanEck. Opinions are current as of the publication date and are subject to change with market conditions. Certain statements contained herein may constitute projections, forecasts and other forward looking statements, which do not reflect actual results. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. All indices mentioned are measures of common market sectors and performance. It is not possible to invest directly in an index.

VanEck Asset Management B.V., the management company of VanEck Semiconductor UCITS ETF (the "ETF"), a sub-fund of VanEck UCITS ETFs plc, is a UCITS management company incorporated under Dutch law registered with the Dutch Authority for the Financial Markets (AFM). The ETF is registered with the Central Bank of Ireland and tracks an equity index. The value of the ETF’s assets may fluctuate heavily as a result of the investment strategy. If the underlying index falls in value, the ETF will also lose value.

Investors must read the sales prospectus and key investor information before investing in a fund. These are available in English and the KIDs in certain other languages as applicable and can be obtained free of charge at www.vaneck.com, from the Management Company or from the following local information agents:

Austria: Facility Agent: Erste Bank der oesterreichischen Sparkassen AG
Germany: Facility Agent -- VanEck (Europe) GmbH
Spain: Facility Agent -- VanEck (Europe) GmbH
Sweden: Paying Agent -- Skandinaviska Enskilda Banken AB (publ)
France: Facility Agent -- VanEck (Europe) GmbH
Portugal: Paying Agent -- BEST – Banco Eletrónico de Serviço Total, S.A.
Luxembourg: Facility Agent -- VanEck (Europe) GmbH

All performance information is historical and is no guarantee of future results. Investing is subject to risk, including the possible loss of principal. You must read the Prospectus and KID before investing in a fund.

No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.

Important Disclosure

This is a marketing communication. Please refer to the prospectus of the UCITS and to the KID before making any final investment decisions.

This information originates from VanEck (Europe) GmbH, which has been appointed as distributor of VanEck products in Europe by the Management Company VanEck Asset Management B.V., incorporated under Dutch law and registered with the Dutch Authority for the Financial Markets (AFM). VanEck (Europe) GmbH with registered address at Kreuznacher Str. 30, 60486 Frankfurt, Germany, is a financial services provider regulated by the Federal Financial Supervisory Authority in Germany (BaFin).

The information is intended only to provide general and preliminary information to investors and shall not be construed as investment, legal or tax advice VanEck (Europe) GmbH, VanEck Switzerland AG, VanEck Securities UK Limited and their associated and affiliated companies (together “VanEck”) assume no liability with regards to any investment, divestment or retention decision taken by the investor on the basis of this information. The views and opinions expressed are those of the author(s) but not necessarily those of VanEck. Opinions are current as of the publication date and are subject to change with market conditions. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results. Information provided by third party sources is believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. Brokerage or transaction fees may apply.

All performance information is based on historical data and does not predict future returns. Investing is subject to risk, including the possible loss of principal.

No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.