The semiconductor industry made a strong recovery in 2024 after overcoming multiple challenges in the previous two years. A surge in demand from various sectors, along with the growing interest in artificial intelligence (AI), led to a significant increase in semiconductor sales last year.
Despite this, semiconductor stocks, particularly those involved with AI, faced a sharp decline last week following the launch of a cost-effective Chinese AI model, DeepSeek. The model raised concerns about its potential to challenge the dominance of U.S. tech companies in the AI space. However, these worries quickly faded, and the market regained its optimism.
Given the positive outlook, investing in semiconductor funds like Fidelity Select Semiconductors Portfolio FSELX, Janus Henderson Global Technology and Innovation Fund JNGTX and Red Oak Technology Select ROGSX thus appears to be a prudent choice.
Semiconductor Sales Grow on Robust Demand
Global semiconductor sales totaled $626 billion in 2024, reflecting a solid 18.1% increase from the previous year, according to a recent report from Gartner. The report also projected semiconductor sales to reach $705 billion this year.
The robust sales were driven by the growing demand for AI processors and GPUs in data centers. Gartner reported that data centers became the second-largest semiconductor market, trailing only smartphones, with revenues soaring to $112 billion in 2024 — almost double the $64.8 billion seen in 2023.
The memory market also experienced a remarkable recovery, with revenues climbing 71.8% year over year. This segment accounted for 25.2% of total semiconductor sales, with DRAM revenues rising 75.4% and NAND revenues jumping 75.7% from the previous year. On the other hand, non-memory semiconductor revenues grew 6.9%, making up 74.8% of the industry’s total revenues.
AI Optimism to Boost Demand
Tech companies are increasingly investing in AI, leading to significant advancements in the field. Firms that have heavily incorporated AI into their products have seen substantial growth in recent years.
Last week, Chinese start-up DeepSeek entered the U.S. AI market with a low-cost, open-source assistant, claiming to use cheaper chips and less data. DeepSeek asserted that its AI model cost less than $6 million to design, causing doubts about AI's ability to drive demand across the entire supply chain—from chipmakers to data centers.
This news triggered a massive tech and semiconductor selloff, but experts soon dismissed concerns, believing the Chinese model was overrated. Many analysts still see AI as a field with immense untapped potential, and this enthusiasm is expected to fuel even greater demand for semiconductors as more companies enter the AI race.
3 Best Choices
We have, thus, selected three mutual funds with significant exposure to semiconductor producers carrying a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) that are poised to gain from such factors. Moreover, these funds have encouraging three- and five-year returns. Additionally, the minimum initial investment is within $5000.
We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors to identify potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also on the likely future success of the fund.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Fidelity Select Semiconductors Portfolio fund seeks capital appreciation. FSELX normally invests at least 80% of assets in common stocks of companies principally engaged in the design, manufacture, or sale of electronic components (semiconductors, connectors, printed circuit boards, and other components); equipment vendors to electronic component manufacturers; electronic component distributors; and electronic instruments and electronic systems vendors.
Fidelity Select Semiconductors Portfolio fund has a track of positive total returns for over 10 years. Specifically, FSELX’s returns over the three and five-year benchmarks are 19.2% and 31.1%, respectively. FSELX has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.63, which is lower than its category average.
To see how this fund performed compared to its category, and other #1 or 2 Ranked Mutual Funds, please click here.
Janus Henderson Global Technology and Innovation Fund aims for long-term growth of capital and specializes in technology. JNGTX invests the majority of its net assets in securities of companies that the portfolio manager believes will benefit significantly from advances or improvements in technology.
Janus Henderson Global Technology and Innovation Fund has a track of positive total returns for over 10 years. Specifically, JNGTX’s returns over the three and five-year benchmarks are 8.6% and 17.9%, respectively. The annual expense ratio of 0.78% is lower than the category average of 1%. JNGTX has a Zacks Mutual Fund Rank #2.
To see how this fund performed compared to its category and other #1 or 2 Ranked Mutual Funds, please click here.
Red Oak Technology Select fund seeks long-term capital growth by investing primarily in stocks of companies that rely extensively on technology in their product development or operations, or which may be experiencing growth in sales and earnings driven by technology-related products and services. ROGSX primarily invests in technology companies that develop, produce, or distribute products or services related to computers, semiconductors and electronics.
Specifically, Red Oak Technology Select fund’s returns over the three and five-year benchmarks are 8.3% and 14.9%, respectively. The annual expense ratio of 0.91% is lower than the category average of 1.25%. ROGSX carries a Zacks Mutual Fund Rank #2.
To see how this fund performed compared to its category, and other #1 and 2 Ranked Mutual Funds, please click here.
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