SOXX vs. CHAT ETF: Semiconductor Chips Beat AI Software

Comparing Roundhill Generative AI & Technology ETF (NYSEMKT:CHAT) and iShares Semiconductor ETF (NASDAQ:SOXX) involves weighing a broad approach to artificial intelligence software and infrastructure against a concentrated bet on semiconductor hardware.

Both funds target the high-growth technological backbone of the modern economy but take distinct strategic paths. While the iShares fund focuses strictly on the physical hardware of the semiconductor industry, the Roundhill fund casts a wider net across software, cloud services, and interactive media companies driving the artificial intelligence boom.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year monthly returns. The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The iShares fund is more affordable for investors, carrying an expense ratio of 0.34% compared to 0.75% for the Roundhill ETF. However, CHAT provides a higher payout, with a yield gap of 1.6 percentage points.

Performance & risk comparison

What's inside

The Roundhill ETF provides exposure to 48 companies within the artificial intelligence ecosystem, spanning technology (77%), communication services (17%), and consumer cyclical (6%) sectors. Its largest positions include Nvidia (NASDAQ:NVDA) at 6.98%, Alphabet (NASDAQ:GOOGL) at 5.65%, and Broadcom (NASDAQ:AVGO) at 4.39%. The fund utilizes proprietary research to manage its portfolio and assets under management (AUM). It was launched in 2023. CHAT has paid $1.68 per share in dividends over the trailing 12 months, which on its recent ~$93.52 share price works out to a 1.80% yield.

SOXX concentrates 100% of its weight in the technology sector. Its largest positions include Micron Technology (NASDAQ:MU) at 8.17%, Advanced Micro Devices (NASDAQ:AMD) at 8.06%, and Nvidia at 7.19%. The fund holds 30 securities and follows an index that employs market-cap-weighting with a capping methodology where the top five securities are limited to 8% each. It was launched in 2001. The ETF has paid $1.47 per share in dividends over the trailing 12 months, which on its recent ~$599.70 share price works out to a 0.20% yield.

For more guidance on ETF investing, check out the full guide at this link.

What this means for investors

I think it's worth pointing out that CHAT is an actively managed ETF, and so that likely accounts for its higher expense ratio. SOXX merely tracks the NYSE Semiconductor Index.

I don't find CHAT particularly appealing, but SOXX almost has concentration risk squared. It only contains chip stocks, for one. If things get dicey for chipmakers, you're going to see an outsize impact. Stocks in the same sector often move in sympathy; if Micron releases a disappointing quarterly report and shares drop, AMD is likely to sink, too.

But the other part of that concentration risk is the mandate that the top five stocks are capped at 8% each. That sounds good in theory, except you could end up with 40% of the portfolio's value relying on just five names.

If pure-play semiconductor exposure is what your heart desires, SOXX definitely fits the bill. But it's worth considering the risks first.

Erin Kennedy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Broadcom, Micron Technology, Nvidia, and iShares Semiconductor ETF. The Motley Fool has a disclosure policy.