Nvidia's (NVDA -0.42%) earnings have been soaring, climbing in the triple digits last year alone, as artificial intelligence (AI) customers flock to the company for its top-performing chips. As a result, Nvidia's stock has advanced, too, posting a gain of more than 200% over the past year. The company continues to pour investment into research and development, so it's very likely this industry star will stay in the lead.
It's no surprise that investors continue to pile into Nvidia stock, betting on more gains ahead, possibly in the near term and well into the long term. But is this stock really the best investment for you?
After all, even if Nvidia remains in the lead, the stock may not replicate its past performance. Momentum could slow, or the stock's performance may stagnate as investors turn to other tech players ripe for an increase. So investing in Nvidia at this stage and hoping for enormous gains comes with some risk.
You have another option if you're looking for growth and hoping to score a win from the AI boom, though, and that's investing in an exchange-traded fund (ETF) that holds shares of Nvidia and other technology players. One in particular, the iShares Semiconductor ETF (SOXX 0.50%), has proven its strength in recent times. Should you buy Nvidia or this high-growth ETF?
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Consider the expense ratio
First, let's talk a bit about ETFs. These funds own shares of companies in a particular index or industry and trade like stocks, so you can buy them like you would a stock. But they come with an additional cost that's linked to the management of the particular fund. This is known as the expense ratio. It's best to select a fund with an expense ratio of 1% or less to limit your costs.
The advantage of investing in an ETF rather than in just one or a few stocks is it offers you exposure to a whole basket of stocks within a particular theme -- such as semiconductor companies, in this case. Your investment probably won't soar in the triple digits in a short period of time as certain individual stocks have done, but it's also less likely to sink in a short period because it doesn't depend on the performance of just one player. So it's a safer way to invest in a high-growth area such as technology or, more specifically, chip companies.
Now let's consider the iShares Semiconductor ETF, versus an investment in Nvidia. The iShares Semiconductor has an expense ratio of 0.35%, so it fits our investment criteria. Its biggest holding is Nvidia, so it offers you exposure to this star player, and chip giants Advanced Mico Devices and Intel are within the top five positions. The ETF includes 30 holdings -- 78% are semiconductor companies and the rest are semiconductor equipment makers.
Outperforming the Nasdaq
The iShares Semiconductor ETF has outperformed the Nasdaq over the past year, though it has greatly underperformed Nvidia.
Considering we're in the early stages of AI and analysts forecast the AI market will surpass $1 trillion by 2030, this ETF could continue to soar well into the future and even beat the Nasdaq. But it may not beat Nvidia or any other single stock that attracts the market's attention.
Now let's get back to our question: Should you buy Nvidia or this high-growth ETF? This depends on your comfort with risk and your investment strategy.
If your portfolio already includes a diversified selection of technology stocks -- including semiconductor players -- and you're an aggressive investor, you may want to buy Nvidia and bet on the company's next wave of growth. After all, it's preparing to launch the much-awaited Blackwell platform later this year, and that could drive more gains in earnings and share performance.
But if you're a cautious investor or haven't yet invested much in semiconductors, it's best to diversify instead of betting on just one player. The iShares Semiconductor ETF allows you to do just that, offering you exposure to all the top players right away and the ticket to benefit from their growth today and over time.
