Nvidia Just Became The World's Most Valuable Stock; Is It Time For A Semiconductor ETF Rethink?

Nvidia Corp. NVDA just did the unimaginable: it leaped over Microsoft to become the most valuable company in the world on Thursday, with a market capitalization crossing $3.7 trillion. But as the chipmaker solidifies its position as the foundation of the AI era, one segment of Wall Street is somewhat lagging behind — semiconductor ETFs.

Despite Nvidia’s historical rise, some of the largest ETFs that follow the semiconductor space are still predominantly weighted toward legacy chipmakers —companies that dominated the PC and mobile era, but whose trajectories are now threatened by the AI revolution.

Also Read: Nvidia, AMD And The AI Arms Race: 3 Explosive ETFs To Watch Right Now

Not All Chip ETFs Are Built For The AI Race

Take a look at the two heavyweights: the VanEck Semiconductor ETF SMH and the iShares Semiconductor ETF SOXX. Both have seen strong returns, thanks in large part to Nvidia's outperformance, but scratch beneath the surface, and you'll notice they still allocate sizable weight to companies like Intel INTC, Texas Instruments TXN, and Qualcomm QCOM, which haven't benefited nearly as much from the AI arms race.

SMH, for example, has Nvidia at about 20.5%, and Intel continues to hold on to a healthy 3.7% of the portfolio in spite of its failure to gain ground in the GPU segment. SOXX’s own positioning is similarly slanted — Nvidia is a top holding, but legacy companies comprise a bigger-than-anticipated portion of the roster.

AI Winners Vs. Legacy Players

Here’s the irony: Nvidia’s success is being fueled to a great extent by hyperscalers such as Microsoft, Amazon, Meta, and Alphabet — firms which are building out AI infrastructure at a very fast clip. That demand, in turn, is fueling interest in AI-focused semiconductors — GPUs, networking processors, model-training memory, optimized memory, and even the tailor-made AI chips manufactured by companies such as Broadcom and Marvell Technology.

But most broad semiconductor ETFs still portray an outdated vision of the industry, one still led by general-purpose computing and consumer hardware cycles, rather than AI computing.

The ETF Innovators Catching On

There are some ETFs that have turned. The Invesco PHLX Semiconductor ETF SOXQ and the SPDR S&P Semiconductor ETF XSD do it differently. XSD is equal-weighted, reducing Nvidia’s weighting but offering a more equalized reflection of the sector, including newer or niche companies such as Ambarella AMBA and Advanced Micro Devices AMD, which are also being boosted by AI-related trends.

And then there are thematic ETFs such as the Roundhill Generative AI ETF CHAT, not semiconductor pure plays, but more representative of next-generation AI infrastructure, including semis that actually underpin the boom.

The Concentration Conundrum

Nvidia’s ascent has also brought a novel challenge: the risk of concentration. SMH and SOXX each have more than one-fifth of their portfolios invested in a single stock, a fantastic ride on the way up, but potentially perilous if attitudes reverse.

That risk is aggravated by underperformance from other holdings. Intel, for example, has fallen about 27% in the past year. So while the front-page ETF returns appear solid, they’re disproportionately reliant on a single ticker.

Time For A Chip ETF Makeover?

Investors betting on the future of semiconductors might need to rethink their exposure. In an AI-dominated world, chipmakers are no longer a monolith, and ETFs that treat them as such may underdeliver.

As Nvidia continues to achieve milestones and propel the AI ecosystem forward, the question for ETF issuers is simple: Will they adapt for the AI age, or continue playing the greatest hits of the previous chip cycle?

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