Micron outpaces NVIDIA in 2025’s AI Stock Race, But a Semiconductor ETF Offers the Savviest Path Forward
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The artificial intelligence boom proved its strength again in 2025, driving a more than 22% gain for tech stocks and outperforming the broader market for the 11th time in the last 12 years. While NVIDIA (NASDAQ:NVDA) remains a dominant force in the AI landscape, a surprising contender emerged as the top performer in the semiconductor sector last year: Micron Technology (NASDAQ:MU). However, experts suggest that investors seeking to capitalize on the industry’s growth may find greater success with a diversified approach.
The global semiconductor market is poised for ample expansion, with a robust compound annual growth rate (CAGR) of 7.3% between 2025 and 2030, according to industry consultancy firm Grand View Research. This growth is fueled by increasing demand across a wide range of applications, including wired and wireless communications, consumer electronics, automotive technology, and data storage.
Specifically, the United States is witnessing a surge in the adoption of artificial intelligence (AI) and Internet-of-Things (IoT)-driven chip designs, further accelerating the demand for advanced semiconductor solutions. A November 2025 report from McKinsey projected that the global semiconductor market could reach $1 trillion by 2030, with the U.S. accounting for 30% of advanced-node semiconductor fabrication capacity.
Beyond Individual Stocks: The Case for ETFs
Despite the immense potential, identifying the next big winner in the semiconductor industry is a challenging endeavor, akin to “taking a shot in the dark” given the proliferation of startups vying for market share. Instead of focusing on individual companies, investors may find greater success with a thematic ETF that provides diversified exposure to the entire sector.
SPDR S&P Semiconductor ETF: A One-Stop Shop
The SPDR S&P Semiconductor ETF (NYSE:XSD), managed by State Street, offers investors a strategic way to tap into the semiconductor industry’s growth potential. With $1.61 billion in assets under management and a net expense ratio of 0.35%, the fund aims to replicate the performance of the S&P Semiconductor Select Industry Index. The fund’s dividend currently yields 0.25%, or 82 cents per share annually, partially offsetting the expense ratio.
Interestingly, while NVIDIA is included in the XSD’s holdings, it only ranks 19th by weight. This is due to the fund’s methodology, which is based on a modified equal-weight index. This approach caps allocations to larger companies to ensure that smaller, up-and-coming firms receive significant exposure.
Currently, the index-and therefore the ETF’s top holdings-favors companies like Micron, Rigetti Computing (NASDAQ:RIGU), Intel (NASDAQ:INTC), sitime (NASDAQ:SITM), and MACOM Technology Solutions (NASDAQ:MTSI). Advanced Micro Devices (NASDAQ:AMD), which saw a nearly 79% gain in 2025, holds the sixth-largest allocation within the fund.
Strong Performance and Positive Outlook
In 2025, the XSD delivered a strong performance, gaining over 29%-outpacing both the tech sector (22.3%) and the broader S&P 500 (17.51%). Given the numerous tailwinds supporting the semiconductor industry, Wall Street anticipates continued strong performance in 2026.
Based on 675 analyst ratings of the top 25 companies within the SPDR S&P Semiconductor ETF-representing over 75% of the fund’s portfolio-the fund currently holds a “Moderate Buy” rating. The majority of its holdings also received favorable ratings, with most earning “Moderate Buy,” “Buy,” or “Strong Buy” designations, and only one receiving a “Sell” rating. Further bolstering confidence, short interest in the XSD heading into 2026 stands at just 2.22% of the float, a significant decrease from the $4.97 billion worth of shares shorted on June 30.
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