Investing in AI With Semiconductor Stocks

What’s the most common mistake newbie investors make? No Little Johnny, it’s not backing up the truck on a stonk because a “community” of cheerleaders convinced you to, nor is it thinking a $5 stock is cheaper than a $100 stock. The mistake we see made most often is providing share price performance without utilizing a benchmark.

Benchmarks are the foundation of institutional investors who choose to either track them (passive investing) or beat them (active investing). For technology investors, a commonly used benchmark is the Invesco QQQ Trust (QQQ) which represents the top 100 stocks trading on the Nasdaq exchange. If you’re holding a stock that trades on Nasdaq, you might be stoked you’re up +300% over the past decade. In fact, you did poorly. That’s because the QQQ returned +360% over the same time frame. In other words, you took on company-specific risk while underperforming a well-diversified benchmark by 60%.

Stock picking becomes even more difficult when hype is driving stocks upwards. NVDIA’s year-to-date performance of +118% has been abnormal because the QQQ only returned +24% over the same timeframe. Compare that to a more relevant benchmark, the iShares Semiconductor ETF (SOXX), which returned +28% year-to-date. But while NVIDIA’s upward moves have been turning heads, most are ignoring the bigger picture growth NVIDIA has seen over the past decade – a 10-year return of over