Managing Nvidia’s Single-Stock Risk through Diversified Semiconductor Exposure

Semiconductors are at the core of global innovation, powering advancements in artificial intelligence, cloud computing, autonomous vehicles, and more. As demand for these technologies accelerates, the semiconductor industry is expected to remain a key driver of economic and technological growth.

Nvidia has played a crucial role in AI and high-performance computing, with its GPUs widely used for AI model training and data center applications. Nvidia’s leadership in the AI-driven economy has fueled strong performance, attracting significant investor interest. While Nvidia remains a dominant force, history has shown that even the most successful companies can experience volatility, competitive shifts, and extended periods of underperformance.

DeepSeek Revealed Single-Stock Risk in Semiconductors

Recent developments in AI, including the release of DeepSeek’s new model, have highlighted how quickly the landscape can evolve. The semiconductor sector is complex, with innovation coming from multiple companies across chip design, manufacturing, and AI acceleration. While Nvidia continues to be a major player, other companies are shaping the future of semiconductors, and competitive dynamics will likely continue to shift.

We have seen similar scenarios with past market leaders that defined their industries but eventually faced volatility and shifting market dynamics. During the dot-com boom, Cisco was at the forefront of the internet revolution, much like Nvidia is leading the AI movement today. Cisco played a critical role in data center infrastructure, just as Nvidia’s GPUs are essential for AI computing. However, after a massive run-up, Cisco’s stock struggled to maintain momentum, and those who diversified into broader tech exposure saw better long-term outcomes.

More recently, Moderna experienced a sharp rise during the COVID-19 pandemic as its mRNA vaccine technology became a game-changer in biotech. While the company remains relevant, its stock faced a significant pullback once vaccine demand normalized. In both cases, investors who locked in gains and rotated into diversified sector ETFs captured continued growth without the risks of single-stock concentration.

Risk Reward of SMH vs. NVDA

Source: Morningstar as of 2/21/2025. Past performance is no guarantee of future results.

Average Annual Total Returns^* (%)

^*Returns less than one year are not annualized.

The performance data quoted represents past performance. Past performance is not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted. Please call 800.826.2333 or visit vaneck.com for performance current to the most recent month ended.

SMH Gross and Net Expense Ratio is 0.35%. Van Eck Associates Corporation (the “Adviser”) will pay all expenses of the Fund, except for the fee payment under the investment management agreement, acquired fund fees and expenses, interest expense, offering costs, trading expenses, taxes and extraordinary expenses. Notwithstanding the foregoing, the Adviser has agreed to pay the offering costs until at least February 1, 2026.

The Case for a Diversified Approach to Semiconductors

For investors focused on the long-term potential of semiconductors, broadening exposure may provide a more balanced way to participate in the industry’s continued growth rather than relying on a single stock. Semiconductors extend beyond any one company—while Nvidia is a leader, companies such as AMD, ARM, TSMC, Broadcom, and Qualcomm are also advancing the sector.

Additionally, 15 out of 25 holdings in the VanEck Semiconductor ETF (SMH) are Wide Moat companies, representing nearly 30% of the fund, reinforcing exposure to industry leaders. Meanwhile, the VanEck Fabless Semiconductor ETF (SMHX) provides a blend of both Wide and Narrow Moat companies, with 50% of its holdings classified as such (6 Wide Moat, 5 Narrow Moat) as defined by Morningstar, ensuring investors are not only diversified but also invested in the strongest players in the space.

Semiconductor technology is evolving rapidly, with new developments and competitors emerging. A broader strategy may help capture the next generation of industry leaders. Even the strongest companies can experience significant price swings due to market cycles, changing demand, and external pressures. Spreading exposure across multiple companies may help reduce the impact of individual stock volatility.

SMH & SMHX Top 10 Holdings and Weight

Source: Morningstar as of 2/21/2025. Not intended as a recommendation to buy or sell any names referenced herein. Fund holdings will vary. Visit vaneck.com/smh or vaneck.com/smhx for a complete list of fund holdings.

SMH & SMHX: Diversified Exposure to the Semiconductor Industry

For investors looking to stay positioned in the semiconductor space while managing risk, a diversified ETF approach can offer exposure to both today’s leaders and tomorrow’s innovators. SMH provides access to the industry’s largest and most established semiconductor companies, including Nvidia, ensuring participation in major market trends. SMHX offers a more focused exposure to fabless semiconductor designers, including Nvidia and other pivotal players in semiconductor design, which are driving innovation in AI, data centers, and high-performance computing.

While Nvidia remains a key player in AI and semiconductors, history has shown that a diversified approach may help investors navigate market cycles and capture opportunities across the entire industry.

To receive more Thematic Investing insights, sign up in our subscription center.