The past three years have delivered a rewarding bull run for global equities, largely fueled by the artificial intelligence (AI) revolution. For most of this period, mega-cap technology stocks have been the primary beneficiaries.
Semiconductor giants like Nvidia, Broadcom, and TSMC have been central to this trend, leveraging their critical roles in generative AI to join the exclusive trillion-dollar market cap club. But over the last year, a new player has stormed into the spotlight: Micron Technology (MU). The memory chip specialist has delivered a staggering 304% return over the past 12 months, handily outpacing both its peers and the broader S&P 500 and Nasdaq-100 indexes.
Micron is a leader in specialized semiconductors, focusing on advanced memory and storage solutions. Its dynamic random access memory (DRAM) is essential for high-speed data processing in everything from smartphones and laptops to AI servers. Complementing this, its NAND flash memory provides the durable, power-efficient storage critical for AI data centers and emerging Internet of Things (IoT) applications.
However, the real catalyst for Micron’s recent performance is its high-bandwidth memory (HBM) solutions. These are key components for the GPUs and AI accelerators manufactured by Nvidia and Advanced Micro Devices (AMD) . Currently, surging AI demand from hyperscalers—the major cloud providers—is propelling Micron’s business trajectory.
Looking ahead, Amazon, Alphabet (Google’s parent company), Microsoft, and Meta Platforms are projected to spend a combined $600 billion on capital expenditures in 2026, with the lion’s share directed toward data center expansion and chip procurement. Given that Micron has already sold out its HBM capacity for the year, it’s clear the company is becoming a central figure in the AI infrastructure build-out.
Remarkably, despite its explosive stock price appreciation, Micron’s valuation remains compelling. Analysts expect the company’s earnings to quadruple this year, yet its forward price-to-earnings (P/E) multiple sits at a modest 11. For context, many leading AI chip stocks have traded at forward P/E ratios exceeding 40 during earlier phases of the AI revolution. This suggests Micron’s rally may have further to run, as the market has yet to fully price in an AI-driven memory supercycle.
For investors seeking exposure to the semiconductor sector without the volatility of picking single winners, ETFs offer a diversified approach. Four major ETFs dominate this space, but their strategies differ significantly.
As the largest ETF in the sector with over $42 billion in assets, SMH tracks the MVIS US Listed Semiconductor 25 Index. This market-cap-weighted portfolio consists of 25 companies that derive at least 50% of their revenue from semiconductors and chip equipment. It’s a straightforward choice for investors looking to back the industry’s largest players.
XSD tracks the S&P Semiconductor Select Industry Index and targets similar companies as SMH, but with a crucial difference: it’s equally weighted. This approach enhances diversification and gives smaller companies within the sector a larger relative weighting. For those who believe smaller semiconductor firms could offer greater upside, XSD’s structure is appealing.
Following the NYSE Semiconductor Index, SOXX can be seen as a hybrid strategy. It is market-cap-weighted but imposes individual holding caps—the top five positions are limited to 8% each, with all other holdings capped at 4%. This design maintains the influence of industry leaders while mitigating concentration risk.
The newest entrant among the four, SOXQ tracks the PHLX Semiconductor Sector Index. Its methodology is very similar to SOXX, employing market-cap weighting with the same 8%/4% individual caps. For investors seeking comparable exposure, SOXQ is worth watching for potentially competitive fee structures.
Despite some volatility and sector rotation in 2026, semiconductors remain a powerful way to play the long-term AI narrative. While short-term concerns about momentum and valuation persist, there’s little doubt that the AI revolution will sustain demand for chips for years to come.
For investors, picking individual stocks like Micron offers the potential for higher returns—and higher volatility. Semiconductor ETFs, on the other hand, provide a more balanced way to gain broad exposure to this critical sector. Either way, semiconductors deserve consideration as part of a long-term investment strategy.
