The AI Trade Is Getting Overcrowded. Here’s Why You Should Opt for the iShares Semiconductor ETF Instead.

We’re currently experiencing a bull market that some of us may never witness again in our lifetime. The developments around artificial intelligence are currently pushing memory and chip stocks to new highs, with companies like Micron (MU) and SK Hynix just hitting the $1 trillion valuation milestone. No matter which memory or chip stock you put your money on, it continues to go up. As good as this sounds, this is exactly the type of market where overcrowded trades can do a lot of damage in a very short amount of time. How does one diversify away from this risk while still keeping the exposure to AI? The answer is deceptively simple: the iShares Semiconductor ETF (SOXX).

Investors are increasingly trying to catch the next big AI stock. It may look easy at first, but being on the wrong side of an AI trade can cost investors dearly, even leaving them unable to continue playing the game. Even opting for an AI ETF could be problematic, for the simple reason that the technology is advancing at a rapid pace, and it is hard to figure out which stocks will be long-term winners. A semiconductor ETF like SOXX, on the other hand, helps diversify away from this risk. By giving exposure to the semiconductor industry, the ETF bets on the infrastructure rather than the companies building applications with AI. By doing so, it ensures it includes the winners, no matter where the AI industry goes.