Love Nvidia stock: Buy the Semiconductor Bull (SOXL) ETF too

Semiconductor companies are doing well this year, helped by the unprecedented demand by artificial intelligence (AI). Nvidia (NASDAQ: NVDA) stock price has soared by over 152% this year, pushing its total market cap of over $3 trillion. 

It has jumped by more than 25,000% in the past decade. If you love Nvidia, here’s why you should invest in the Daily Semiconductor Bull 3X Shares (SOXL) ETF.

What is the SOXL ETF?

SOXL is one of the biggest active semiconductor ETF with over $11 billion in assets and an expense ratio of 0.765. 

It is significantly different from other popular semiconductor funds like the iShares Semiconductor ETF (SOXX) and the VanEck Semiconductor ETF (SMH). These two generic ETFs track companies in the industry like Broadcom and Nvidia.

SOXL, on the other hand, tracks these companies and adds leverage to its positions. It also aims to achieve 3x the daily returns of a benchmark index that tracks semiconductor companies. 

As such, these three funds have similar companies, with the biggest ones being the likes of Nvidia, Broadcom, AMD, Qualcomm, Intel, Micron, and Microchip Technology. The other big names in the fund are Texas Instrument, Lam Research, and Analog Devices. 

While SOXL seeks daily returns, it has a record of doing well when semiconductor companies are thriving. For example, it has jumped by more than 87% this year while SOXX and SMH have risen by over 30%.

The SOXL ETF also has a long track record of beating the Daily Semiconductor Bear 3X ETF (SOXX), which has over $798 million in assets and has crashed by over 78% in the past 12 months.

SOXL as an Nvidia alternative

There are three main reasons why Nvidia stock investors should consider investing in the SOXL ETF. First, while Nvidia is its biggest constituent, it has more companies, which is a good thing in terms of diversification. 

For example, the SOXL ETF will benefit on Thursday because of the strong Broadcom earnings. In a statement, the company said that its revenue surged to over $12.56 billion while its earnings per share was $10.96. It also boosted its forward estimates to $51 billion and announced a 10-to-one share split. 

Diversification is an important thing especially now that semiconductor valuations are highly stretched, with Nvidia having a forward PE ratio of over 50.

Second, SOXL has a long track record of beating the S&P 500 index. Its total return in the past five years stood at 602% while the SPDR S&P 500 index has returned 103% in this period. The same happened this year as the SOXL rose by 87% while the SPY is up by 14%.

Third, the ETF has some of the biggest names in the semiconductor industry that complements Nvidia shares. Some of these names are companies like Texas Instrument and LAM Research.

Still, the main risk for the SOXL ETF is that semiconductor companies have a stretched valuation. This means that it could retreat sharply if the growth trajectory stalls.

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