Don't Know Which AI Stock To Buy? Here's the Easiest Way To Play the Once-in-a-Generation Tech Boom.

By now, every investor knows that AI stocks are driving the latest boom in the stock market.

Plenty of ink has been spilled on companies like Nvidia (NASDAQ: NVDA) and OpenAI, which are leading the transformative technology behind generative AI applications like ChatGPT.

However, picking a winner in the sector isn't as easy as it might look. Even the clear leaders in AI face risks. Nvidia, for example, is seeing challengers like AMD gain traction, and more of its customers are looking in-house to supplement their own semiconductor needs. TSMC (NYSE: TSM) is the dominant third-party manufacturer of chips, but some investors see it facing competition from a resurgent Intel, which has invested billions into its foundry business, and TSMC remains capacity-constrained. Additionally, its headquarters in Taiwan remains a geopolitical risk.

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A smarter alternative

If you're looking for exposure to the wealth-generating power of the stock market without having to pick individual stocks, one great option is exchange-traded funds (ETFs). These are funds that invest in a range of stocks, typically based on a theme like an index, a region, or a sector.

There are some ETFs that track the semiconductor sector, and one ETF that has been a top performer over its history is the VanEck Semiconductor ETF (NASDAQ: SMH), which has an excellent track record of outperformance since its inception in 2011.

SMH data by YCharts

As you can see, the SMH has trounced the S&P 500 over its history, and it opened a gap in 2016 that has only accelerated in the AI era.

SMH's holdings are many of the top chip stocks you're already familiar with. The chart below shows the top ten holdings of the ETF and their weightings.

If you've been following the AI sector, you likely recognize many of these names, and you may know that the top four stocks have delivered scorching returns lately. Even ASML, which makes lithography equipment to manufacture semiconductors, has soared lately after struggling.

Recent jumps by ASML and Intel show that the AI boom has been strong enough to boost companies whose results have lagged behind those of their peers recently.

Why the VanEck Semiconductor ETF can be a long-term winner

Much of the SMH ETF's recent growth has been tied to the AI boom, but the fund can continue to generate strong returns over the long term even if the boom turns into a bubble.

That's because demand for semiconductors is almost certain to grow as technology advances. Products, like appliances and cars, that used to run on basic electronics are now computerized, and infrastructure increasingly relies on semiconductors. Data centers were growing rapidly even before AI, thanks to increasing demand for cloud computing. Technology is also likely to progress in ways we can't yet predict, like what happened with AI.

The SMH might seem expensive at a trailing price-to-earnings ratio of 46, but you have to remember that many of these companies, including the top holdings, are delivering blistering growth. Nvidia reported 62% revenue growth in its most recent quarter, and Micron's earnings per share is expected to quadruple this year.

On a forward basis, the VanEck Semiconductor ETF is significantly cheaper than the trailing P/E makes it look.

Finally, the investment also offers a good alternative to the S&P 500 as it gives investors exposure to international stocks like TSMC and ASML that aren't in the index.

If you're looking to diversify your AI holdings or for an easy way to get exposure to AI, the VanEck Semiconductor ETF is a great choice.

Jeremy Bowman has positions in ASML, Advanced Micro Devices, Broadcom, Micron Technology, Nvidia, Taiwan Semiconductor Manufacturing, and VanEck ETF Trust-VanEck Semiconductor ETF. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Applied Materials, Intel, Lam Research, Micron Technology, Nvidia, Taiwan Semiconductor Manufacturing, and Texas Instruments. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.