Semiconductor Industry Set for Strong Growth in 2024: SMH ETF Offers Prime Investment Opportunity
The semiconductor industry is poised for robust growth in 2024, presenting an excellent investment opportunity for those considering the SMH ETF. With the potential for strong returns and a track record of outperforming peer ETFs, SMH is worthy of a strong buy rating. Additionally, the relatively low expense ratio of this ETF makes it even more appealing.
While the semiconductor industry experienced a downturn in 2021 and 2022, supply chain stabilization is driving the industry towards a promising future in 2024. The previous oversupply of semiconductors resulted in a decline in share prices for many companies. However, the tide is turning, and 2023 marked the beginning of a long-term turnaround.
Supply issues have been resolved, and the semiconductor industry is expected to achieve a compounded annual growth rate (CAGR) of 12.3% through 2030. Although Asia is the main producer of semiconductors, the United States accounted for approximately 12% of global semiconductor supply in 2021.
Semiconductor companies have already seen substantial returns, with NVIDIA (NVDA) and Broadcom (AVGO) both posting impressive gains. Global demand for semiconductors is projected to increase further beyond 2024, making it an ideal time for investors to capitalize on these growth opportunities through the SMH ETF.
The SMH ETF focuses on large-cap information technology sector stocks, specifically in the semiconductor industry. It seeks to track the performance of the MVIS US Listed Semiconductor 25 Index (MVSMHTR) and has 26 holdings with $11.72 billion in assets under management (AUM).
In comparison to other semiconductor ETFs such as PSI, XSD, and SOXX, SMH has demonstrated superior performance and a higher 10-year compound annual growth rate (CAGR) of 24.36%. Furthermore, SMH boasts one of the lowest expense ratios among its peers at 0.35%.
It’s worth noting that semiconductor ETFs typically have lower dividend yields as companies reinvest their profits rather than distributing them as dividends. Despite this, SMH has shown a 5-year dividend growth CAGR of 11.55%.
As with any investment, there are risks to consider. While SMH is heavily concentrated on top holdings such as NVIDIA, it also includes international holdings, which introduces additional geopolitical risk. As the semiconductor industry is inherently volatile, investors should be aware of these potential risks.
In conclusion, the semiconductor industry is expected to experience strong growth in 2024 and beyond. The SMH ETF presents a prime investment opportunity due to its historical performance, low expense ratio, and exposure to key holdings like NVIDIA, TSMC, and ASML. Investors looking to capitalize on the projected profitability of the semiconductor industry should consider adding the SMH ETF to their portfolio.
Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute financial advice. Investing in the stock market involves risks, and investors should conduct thorough research and seek professional guidance before making any investment decisions.
