The amount of money pouring into computing power has reached a scale that's hard to wrap your head around. Research firm Dell'Oro Group now projects that global data center capital expenditures will top $1 trillion in 2026, as cloud computing providers race to build the data centers that artificial intelligence (AI) runs on. For investors, the hard part isn't believing that money will get spent. It's figuring out which companies will capture it. That's where an exchange-traded fund (ETF) can help. Instead of trying to pick the one chipmaker that comes out ahead, a fund spreads the bet across many of them, trading away some potential upside in exchange for a lot less single-stock risk. And one fund, in particular, stands out as a straightforward way to own the semiconductors at the center of this build-out: the iShares Semiconductor ETF ( SOXX +5.09% ) . Here's why it could be a smart way to back the AI infrastructure wave. What the fund actually owns The iShares Semiconductor ETF holds about 30 stocks, providing investors access to a huge portion of the chip sector's supply chain. Near the top are the chip designers at the heart of AI data centers, led by Nvidia -- the dominant supplier of the graphics processing units (GPUs) used to train AI models. And close behind sit chip designers Broadcom and Advanced Micro Devices . Memory specialist Micron is even in the mix. The fund reaches further down the chain, too, into the companies that build the machines used to manufacture chips. Applied Materials is one of the larger holdings here. This breadth matters because the build-out isn't only about the most famous names. As chipmakers expand capacity, their equipment suppliers tend to benefit alongside them -- and that's exactly what has been happening during this AI build-out so far. The demand behind the chip sector is undeniable. The four largest U.S. cloud computing providers' combined capital expenditure guidance for 2026 exceeds $700 billion. It's worth noting that the iShares Semiconductor ETF charges an expense ratio of 0.34%, or about $3.40 per $1,000 invested. But this is arguably low for a focused, thematic fund. The trade-offs to weigh Of course, there are some real trade-offs here. The biggest is that a semiconductor fund is still a concentrated bet. Every holding is a chip stock, so this isn't a substitute for a diversified portfolio. It's a focused wager on one corner of the market. That said, the iShares fund is the more balanced of the two big chip ETFs. Its largest holding accounts for only about 8% to 9% of assets, and its 10 biggest positions together make up a little under 60%. Compare that with the VanEck Semiconductor ETF ( SMH +4.28% ) , where Nvidia alone accounts for about 15% and Taiwan Semiconductor for nearly 10%, leaving its 10 largest holdings at about 71% of the fund. Because the iShares index caps how large any single name can get, no one stock can dominate it. Both funds carry the same underlying risk, though. Semiconductors are deeply cyclical. Demand can swing suddenly and significantly. Indeed, the group has experienced painful downturns even amid strong long-term trends. Chip stocks have also climbed sharply over the past year, lifting the sector's valuation and leaving less room for disappointment. And it's worth emphasizing that a chip-focused fund won't capture every piece of the build-out, either. Much of the projected $1 trillion will go toward power and networking equipment that sits outside a pure semiconductor fund's reach. Today's Change ( 5.09 %) $ 30.36 Current Price $ 626.33 Overall, I think the iShares Semiconductor ETF is a good long-term bet for investors who think we're still early in the AI chip boom. It spreads the risk across the value chain while maintaining a low expense ratio. But for those who do buy into this ETF, I'd just size the position carefully. This is a concentrated, cyclical bet riding a powerful trend -- which is exactly why it could reward patient investors, but could also be a volatile ride if spending slows. After all, the surest way to stay invested through the swings is to never put in more than you can comfortably hold through a downturn.

Source: The Motley Fool

Read Original Source →