1 Tech ETF to Buy Hand Over Fist and 1 to Avoid

Investors may view the technology sector as sprawling, and they wouldn't be entirely off-base. The Technology Select Sector index, which houses the S&P 500's tech components, includes 70 stocks from seven industries.

As a result, tech exchange-traded funds (ETFs) can also deliver disparate performances, and what's playing out in the early stages of 2026 is a reminder of that fact. For example, the tech-heavy Nasdaq-100 is off 2% this year. A 2% dip in less than two months is enough for many investors to endure, but some tech ETFs are the worse for wear. Much, much worse.

That's the negative news. On the positive side of things, tech weakness is creating buying opportunities for discerning investors, meaning there are some ETFs out there that merit buying hand over fist.

Some tech ETFs aren't worth the risk today, but others demand attention. Image source: Getty Images.

Dark clouds hang over this ETF

Investors who devoted just a few minutes to market headlines in recent weeks likely know that software stocks are being drubbed. As of Feb. 6, software equities shed a combined $1 trillion in market value amid fears that emerging artificial intelligence (AI) tools are making some software programs obsolete.

Cloud computing stocks are enduring their share of punishment, and that brings us to the $2.47 billion First Trust Cloud Computing ETF (NASDAQ: SKYY). Some of the ETF's holdings, Adobe and Salesforce among them, are front and center on the theme of AI agents disrupting the software space.

This ETF presents investors with a potential dilemma. On one hand, it's undoubtedly home to some quality stocks, and there's even a belief in some corners of the AI world that software equities have fallen too far, too fast.

On the other hand, at a time when some market observers are using phrases like "SaaS (software as a service) Apocalypse," it's hard to get behind a fund that has the look of a falling knife. Remember the old saying about markets staying irrational longer than investors can remain solvent, and apply it to this ETF in the near term.

Is it a rebound candidate? Sure, but market participants would do well to wait for the cloud computing ETF to actually show signs of life rather than engaging in bottom-fishing.

Chips ahoy with this ETF

Despite some investor displeasure about 2026 AI spending plans from the likes of Alphabet and Amazon, among others, it is evident that the pick-and-shovel side of the AI theme is alive and well. That benefits select chip stocks and ETFs such as the VanEck Semiconductor ETF (NASDAQ: SMH).

Up 11.5% year to date, this $43 billion ETF is a beacon of strength among tech funds. Investors should note that the VanEck fund is at least a partial proxy for Nvidia as that stock accounts for 18.3% of the portfolio, making Nvidia a key driver of this ETF.

This ETF's torrid start to 2026 may imply that investors would do well to wait for a pullback, but there's no guarantee a deep one will materialize. Not when generative AI chips are expected to drive $500 billion in sales this year, which should benefit multiple members of this ETF's roster.

Investing isn't always straightforward, but as it relates to this chip ETF, keeping it simple is a practical strategy. Consider that Nvidia CEO Jensen Huang said last week that demand is "sky high." Those comments were made about two weeks after CEO Hock Tan of Broadcom, this fund's third-largest holding, described AI chip demand as "insatiable." Those comments imply the AI build-out has momentum, is sustainable, and could support more upside for this ETF.

Todd Shriber has positions in Alphabet and Broadcom. The Motley Fool has positions in and recommends Adobe, Alphabet, Amazon, Nvidia, and Salesforce. The Motley Fool recommends Broadcom and recommends the following options: long January 2028 $330 calls on Adobe and short January 2028 $340 calls on Adobe. The Motley Fool has a disclosure policy.