Nvidia (NVDA 0.01%) reported earnings yesterday afternoon and they were, as has been usual recently, incredible. The chipmaker increased sales by 56% in its fiscal 2026 second quarter from the same period a year ago, while net income soared 59%.
That’s phenomenal growth for any company. It’s otherworldly for a company with a $4.4 trillion market cap, the world’s largest.
Yet the stock fell on the earnings report because Wall Street expected better results from the company’s data center unit. If that seems a bit nitpicky, it’s because it is.
And if that gives you pause about investing in such an expensive stock, or relying too much on just one stock to ride a trend, you’re hardly alone. But the good news is that you don’t need to put your money into just one stock to profit from the AI boom. There is a very attractive alternative.
Incredibly high expectations
In Wall Street parlance, Nvidia shares are “priced for perfection.” To maintain its lofty share price, the company must do everything absolutely flawlessly, quarter after quarter.
Nvidia is clearly a great company and a great stock. Yet it’s also clearly pricey — make that extremely pricey. The trailing-12-month price-to-earnings ratio for the stock is about 58, compared to about 30 for the S&P 500 index. Nvidia will have to continue to post huge quarterly outperformances to maintain its share price going forward.
But Nvidia’s results tell us something else investors need to know: Global demand for advanced semiconductors remains nearly insatiable at the moment.
Image source: Getty Images.
A sector on fire
The entire semiconductor sector is white hot right now as the artificial intelligence boom continues and companies worldwide increase their capital expenditures on advanced chips. Global chip sales increased 7.8% in the second quarter compared to the first quarter, to almost $180 billion, according to the Semiconductor Industry Association. Sales in June were 20% higher than June of 2024. Investment bank UBS estimates that companies will spend $375 billion on AI infrastructure this year and $500 billion in 2026.
As a result, there are many great semiconductor stocks that investors should be considering at the moment, many of which have outperformed Nvidia this year and are cheaper than it relative to earnings. Just a couple of examples: Micron Technologies (MU +0.04%) is up 40% year to date as of market close Aug. 27 and Monolithic Power Systems (MPWR 0.01%) has climbed 46% this year. Both have P/E ratios that are less than half that of Nvidia.
The entire semiconductor industry — not just Nvidia — is on fire. The PHLX Semiconductor Sector Index (SOX), a capitalization-weighted index of the 30 largest U.S.-listed semiconductor companies, is up about 16% this year — compared to 10% for the S&P 500 — and 162% over the past five years.
Savvy investors who want exposure to the chip-making industry — but don’t want to overpay or be overly reliant on a single company like Nvidia — can do so through the Invesco PHLX Semiconductor ETF (SOXQ +0.00%), which tracks the same 30 stocks in the PHLX index that are involved in the design and manufacture of semiconductors. That exchange-traded fund has soared since April 9, the day President Donald Trump unexpectedly announced a delay to the tariffs he laid out just a week before. It’s up 65% since then, compared with about 30% for the broader S&P 500 index.
To be sure, Nvidia is well represented in the PHLX ETF as it accounts for a little more than 13% of the fund, which currently has about $517 million of assets under management. Here are the top four holdings.
- Nvidia 13%
- Broadcom (AVGO +0.03%) 10%
- Taiwan Semiconductor Manufacturing (TSM +0.00%) 8%
- Advanced Micro Devices (AMD +0.01%) 5%
Other than the top three holdings, no stock accounts for more than 5% of the fund, which makes it highly diversified in the semiconductor industry, with a mix of large-cap, mid-cap, and small-cap stocks as well as both growth and value stocks.
SOXQ also has a lower expense ratio — only 0.19% — than most other semiconductor ETFs. That ratio is the annual cost of operating the fund, expressed as a percentage of the fund’s net assets. It is deducted from the fund’s value and paid by investors.
If you believe — as I do — that investment into and adoption of AI-related tools and applications, automation, data centers, self-driving cars and the Internet of Things will only ramp up, and you want to spread your AI investments beyond a single company that provides the needed chips, the Invesco PHLX Semiconductor ETF could be for you.
Great Job newsfeedback@fool.com (Matthew Benjamin) & the Team @ The Motley Fool Source link for sharing this story.
