The Global X Semiconductor ETF (ASX: SEMI) invests in companies that develop and manufacture semiconductors globally, a crucial component in our increasingly digital world. The SEMI ETF has become popular among ASX investors, as investors anticipate the demand for semiconductors to soar as the adoption of artificial intelligence (AI) accelerates.
From its recent low of $7.42 in October 2022, the SEMI ETF unit price surged to an all-time high of $19.52 in June 2024. However, the price has since dropped by approximately 14% in less than two months.
Is this decline in the unit price a buying opportunity for long-term investors?
What pushed its unit price lower
The SEMI ETF's five largest positions, as listed below, comprise about half of the ETF's total invested assets. These companies are global leaders in the semiconductor industry, known for their innovation, strong cash flow, and market dominance. The SEMI ETF's five largest positions, as of 29 July, are as follows:
- Nvidia Corp (NASDAQ: NVDA): 12.77% of net assets
- Taiwan Semiconductor Manufacturing Co Ltd (NYSE: TSM): 11.44% of net assets
- Broadcom Inc (NASDAQ: AVGO): 11.17% of net assets
- ASML Holdings Inc (NASDAQ: ASML): 8.81% of net assets
- Advanced Micro Devices Inc (NASDAQ: AMD): 6.12% of net assets
The ETF has a global exposure, with 66% invested in the US, followed by Taiwan (14%) and the Netherlands (11%).
The recent weakness in the SEMI ETF's price can be attributed to two factors.
Firstly, investment sentiment in the technology sector, led by the Nasdaq Composite Index (NASDAQ: .IXIC), has softened. Disappointing earnings results from tech giants like Tesla and Google parent Alphabet did not meet investors' heightened expectations. This fueled the ongoing sector rotation from 'big tech' to less expensive sectors such as small caps.
Secondly, there have been some adverse news reports from the US. In mid-July, Bloomberg reported that the US government was considering further restrictions on semiconductor equipment exports to China. In July, US presidential candidate Donald Trump suggested that Taiwan should compensate the US for its defence, which pressured the TSMC share price.
A Buying Opportunity?
Despite the recent setbacks, there are reasons to be optimistic about the SEMI ETF. ASML's recent quarterly report indicates that business momentum remains strong.
Investors are now eagerly awaiting Nvidia's earnings report, scheduled for 28 August. According to my colleague Keith, comments from Alphabet and Tesla's earnings conferences might provide clues for Nvidia's performance. Alphabet's increased capital expenditure and Tesla's emphasis on AI reliance could be bullish signals for Nvidia.
The AI transformation is just beginning and is expected to unfold over several years. While short-term volatility may persist, the long-term prospects for the semiconductor industry—and the SEMI ETF—appear promising. Investors with a long-term view may find this dip an opportune moment to add to their holdings.
The SEMI ETF unit price rose 2.07% on Monday, closing at $16.80.
