Meet the Super Semiconductor ETF Obliterating the S&P 500 and the Nasdaq-100 in 2026

The iShares Semiconductor ETF (NASDAQ: SOXX) has exploded higher by 70% during 2026 (as of the market close on Tuesday, Aug. 25), so it's crushing the S&P 500 (SNPINDEX: ^GSPC) and the Nasdaq-100 indexes, which have returned 12.1% and 15.6%, respectively.

The iShares Semiconductor ETF is an exchange-traded fund (ETF) that exclusively invests in American companies that design, manufacture, and distribute chips and components. It's particularly focused on those operating in the artificial intelligence (AI) segment of the industry, which is why its three largest holdings are Nvidia (NASDAQ: NVDA), Micron Technology (NASDAQ: MU), and Advanced Micro Devices (NASDAQ: AMD).

Should investors still buy the iShares ETF after its blistering gain this year?

Image source: Getty Images.

America's best chip stocks packed into one ETF

The iShares Semiconductor ETF holds just 30 stocks, which can be a recipe for volatility if Wall Street turns negative on the chip sector. Therefore, investors shouldn't park all of their money in this fund alone, but it can certainly be a valuable addition to a diversified portfolio. In fact, investors who had no exposure to the semiconductor industry since the AI boom began to gather momentum in early 2023 have likely underperformed the broader market.

Over that three-and-a-half-year period, Nvidia, Micron, and AMD delivered a median return of 1,360%, compared to a 99% return in the S&P 500.

Data by YCharts.

The iShares ETF has more than one-quarter of its assets parked in those three stocks alone.

Data source: iShares. Portfolio weightings are accurate as of Aug. 24, 2026, and are subject to change.

Nvidia's graphics processing units (GPUs) for the data center currently lead the industry in terms of performance in AI training and inference workloads. According to chief executive Jensen Huang, every leading frontier AI company plans to adopt Nvidia's new Vera Rubin data center systems, which just started shipping.

AMD has become one of Nvidia's top competitors. It recently launched a fully integrated data center rack called Helios, featuring specialized software and networking components designed to extract the best performance from its latest MI450 GPUs. In fact, Helios might be one of the industry's only true alternatives to Nvidia's Vera Rubin systems.

But neither Nvidia nor AMD could run their latest systems without high bandwidth memory (HBM), and Micron is one of the world's top suppliers. HBM keeps data flowing to GPUs seamlessly, so without it, there would be bottlenecks that could result in sluggish performance when deploying AI chatbots and AI agents.

Outside its top three positions, the iShares ETF holds several other leading chip stocks, including Broadcom, which designs its own data center chips and networking components, and Taiwan Semiconductor Manufacturing, which fabricates chips for Nvidia, AMD, and many other semiconductor companies.

The iShares Semiconductor ETF has a great track record against the market

The iShares Semiconductor ETF has delivered a compound annual return of 14.2% since its inception in 2001, crushing the S&P 500, which returned around 9% per year over the same period. Simply put, its outperformance so far in 2026 is no fluke.

But before investors buy this ETF, it's important to remember that past performance isn't always a reliable indicator of future results, and there are certainly reasons for caution right now. First of all, chipmakers are benefiting from severe supply shortages, giving them an unprecedented ability to dictate prices and significantly boost their profit margins. This won't last forever, because every company in the industry is racing to build more manufacturing capacity.

Second, some cracks are forming on the demand side. Lawmakers in more than a dozen U.S. states have introduced legislation to temporarily ban the construction of new data centers while they weigh the social, financial, and environmental impacts. Plus, the soaring cost of chips and components is making AI software extremely expensive to deploy, forcing many companies, including Walmart, Uber Technologies, and Amazon, to implement strict usage caps on their employees.

According to a recent survey by UBS Group, around 60% of businesses are now directing tasks to cheaper, more efficient AI models to keep costs under control. These models typically require less computing power, so the shift could result in lower demand for chips over time.

As a result, while the iShares Semiconductor ETF has thrived during many technological booms over the last two decades, investors who buy it today might want to temper their expectations and brace for near-term volatility.

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Broadcom, Micron Technology, Nvidia, Taiwan Semiconductor Manufacturing, Walmart, and iShares Trust-iShares Semiconductor ETF. The Motley Fool recommends Uber Technologies. The Motley Fool has a disclosure policy.