Is This ETF the Smartest Investment You Can Make Today?

This year -- and probably 2026 -- will go down as the years where semiconductors and tech stocks ruled Wall Street. The advancement of artificial intelligence (AI) is having a profound impact on the stock market and the world in which we live -- and I think we're just at the beginning.

There are numerous ways to invest in AI, but I'm more inclined to invest in infrastructure than try to predict which companies will develop the best programs, most effective chatbots, and farthest-reaching concepts, such as robot personal assistants -- the latter being Elon Musk's vision.

Additionally, I strive to diversify my portfolio whenever possible -- it's better to invest in a basket of stocks in a hot sector than to try to pick one or two and hope to strike it rich.

That's why I think the best investment you can make today is not in a single stock, but in an exchange-traded fund (ETF) that focuses on creating the infrastructure that makes AI possible. And for that reason, I'm turning to the VanEck Semiconductor ETF (NASDAQ: SMH).

Image source: Getty Images.

All about the SMH ETF

The VanEck Semiconductor ETF tracks the performance of the MVIS US Listed Semiconductor 25 index, which comprises the largest and most liquid companies listed in the U.S. that are involved in chip production and equipment businesses. This ETF has been a strong performer, showing a 38% gain in 2025 vs. 17% for the tech-heavy Nasdaq Composite.

No single stock in the ETF can have more than a 20% weighting; however, Nvidia currently holds the largest concentration in the VanEck Semiconductor ETF. The fund holds nearly 35 million shares of Nvidia stock, giving it an 18.5% weighting. Other top companies represented include Taiwan Semiconductor Manufacturing, Broadcom, Micron Technology, and Advanced Micro Devices.

Data source: VanEck (data as of Nov. 18, 2025).

These five stocks comprise nearly half of the entire ETF, providing investors with significant exposure to various avenues of semiconductor infrastructure. Nvidia is the leading manufacturer of graphics processing units (GPUs) used in data centers for high-performance computing tasks, including training and running AI models. Advanced Micro Devices, meanwhile, is a leading provider of central processing units (CPUs) that data centers need to run everyday tasks.

Broadcom designs and manufactures AI accelerators that speed up the calculations required to run AI workloads. Broadcom recently announced a deal to collaborate with OpenAI, the maker of ChatGPT, for 10 gigawatts of custom AI accelerators.

Micron creates the dynamic random access memory (DRAM) that computers, servers, and AI GPUs use to run AI workloads. Taiwan Semiconductor is the largest manufacturer of semiconductor chips, utilizing its foundries to produce products designed by Nvidia, Broadcom, AMD, and other companies.

The fund has an expense ratio of 0.35%, which translates to $35 annually for every $10,000 invested. That's more expensive than you'll see from an index fund that follows the full S&P 500, but it's much cheaper than many boutique ETFs that are highly focused on a specific theme. Considering that the VanEck ETF covers only 25 stocks and is one of the more focused ETFs you'll find, and considering the oversize returns you get from the semiconductor industry, the 0.35% expense ratio is a bargain.

Why the SMH ETF is a good investment today

We are at the very beginning of a massive technological revolution driven by AI and machine learning. Grand View Research estimates that the global AI market was $279 billion in 2024 and is expected to grow to $3.5 trillion by 2033, with a compound annual growth rate (CAGR) of 31.5%.

While I don't think you can expect the VanEck ETF to more than double the return of the broader market every year, I believe it will outperform the market, making up for one or two corrections along the way. Remember, the key to stock market investing is consistency and compounding returns. However, by investing in the VanEck Semiconductor ETF for the long term, I believe investors can gain a significant advantage in achieving their long-term goal of saving for a prosperous retirement.

Patrick Sanders has positions in Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.