Semiconductors, part of the broader technology sector, have largely been responsible for last year’s market rally. Demand for semiconductors started making a rebound in 2024 after a slowdown and has been growing steadily over the past few quarters. The robust jump in sales was primarily driven by optimism surrounding artificial intelligence 9AI), especially generative AI.
However, investors’ sentiment has lately been dented, with semiconductor stocks taking a hit over the past month, following the rise of DeepSeek, a cost-effective AI model from China. Although DeepSeek initially sparked concerns about its potential threat to the dominance of U.S. tech firms in the AI industry, the fears have faded over time, giving way to renewed optimism.
Given this situation, investing in semiconductor funds like T. Rowe Price Science & Tech PRSCX, Fidelity Select Semiconductors Portfolio FSELX and Red Oak Technology Select ROGSX appear to be a prudent choice.
Semiconductor Sales Continue to Grow
According to the Semiconductor Industry Association (SIA), global semiconductor sales totaled $56.5 billion in January, jumping a solid 17.9% year over year from the January 2024 total of $47.9 billion.
However, monthly sales declined marginally by 1.7% in January. The sudden dip in monthly sales can be attributed to concerns over the future of U.S. tech companies in the AI industry, following the hyped launch of the cheaper Chinese rival DeepSeek. Even then, January recorded the highest-ever monthly sales total for the month.
The January figures follow a robust 2024 for semiconductors that saw global semiconductor sales hitting $627.6 billion, a 19.1% jump from the previous year’s total of $526.8 billion. The fourth quarter alone saw a 17.1% year-over-year rise in sales, totaling $170.9 billion, and a 3% rise sequentially.
Robust Demand, AI Enthusiasm Boosting Demand
Growing demand for semiconductors in data centers has been driving sales globally. Also, the memory market has been significantly contributing to the surge in demand, with revenues soaring 71.8% last year compared to 2023.
Several technology companies have made hefty investments in AI development, and companies integrating AI into their products have experienced remarkable growth in recent years.
Experts remain confident in AI’s vast, untapped potential and anticipate sustained growth in demand as more semiconductor companies enter the AI sector, with the SIA projecting double-dight sales growth in 2025.
3 Best Choices
We have, thus, selected three mutual funds with significant exposure to semiconductor producers. These funds carry a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy) and are poised to gain from the above 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).
T. Rowe Price Science & Tech fund seeks to invest in long-term capital growth by investing at least 80% of net assets in common stocks of companies expected by T. Rowe Price to benefit from the development, advancement and use of science and technology. While most of PRSCX’s assets are invested in U.S. common stocks, other securities may also be purchased, including foreign stocks, futures, and options in keeping with the fund’s objectives.
T. Rowe Price Science & Tech has a track of positive total returns for over 10 years. Specifically, PRSCX returns over the three and five-year benchmarks are 14.7% and 16.5%, respectively. PRSCX’s annual expense ratio of 0.79% is lower than the category average of 1.05%. PRSCX has a Zacks Mutual Fund Rank #1.
To see how this fund performed compared to its category, and other #1 or 2 Ranked Mutual Funds, please click here.
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 24.5% and 31.2%, 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.
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 12.5% and 15.8%, respectively. ROGSX carries a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.92%
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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This article originally published on Zacks Investment Research (zacks.com).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
