The semiconductor industry has been strong amid the coronavirus outbreak largely due to the expanding digitization and growing dependency on Internet. In fact, the S&P Semiconductor Select Industry Index has returned around 15.5% so far this year compared with the S&P 500’s nearly 5% gain during the same period.

Overall, the industry has also impressed with solid earnings second-quarter results, with better-than-expected reports from well-known players like Texas Instruments (TXN), Lam Research Corporation (LRCX), Intel (INTC), Qualcomm (QCOM) and Advanced Micro Devices, Inc. (AMD) infusing optimism in the sector.

Factors Driving Demand

The coronavirus pandemic continues to wreak havoc across the globe. The outbreak has compelled people to stay indoors and work remotely. Also, the pandemic has resulted in some changes in lifestyle preferences. Even as the global economy starts to reopen in phases and social-distancing restrictions are being eased, people will try to minimize the human-to-human contact. Twitter (TWTR) has said that its employees can keep working from home permanently if they wanted to, whereas several companies like Microsoft Corporation (MSFT), Chevron Corporation (CVX), Facebook, Inc. (FB) and Uber Technologies, Inc. (UBER) have extended their work-from-home facilities until mid-2021.

In such a scenario, cloud computing’s popularity is growing and altering the way people are managing data, communication and business. Cloud computing is seeing increasing usage globally as it allows data interoperability in a scalable, cost-efficient way through data collection, processing, analyzing and sharing across platforms. Before the lockdown, companies were already discarding their own data centers to rent computing from Amazon (AMZN), Microsoft (MSFT) and Google. In order to keep up with the increasing demand for cloud storage, semiconductor chips are also seeing an uptick in requirements from data-center operators.

In fact, going by Semiconductor Industry Association’s (SIA) press release, worldwide semiconductor sales rose 5.1% year over year to $34.5 billion this June. Second-quarter 2020 sales were also up 5.1% year on year to $103.6 billion, but down 0.9% in comparison to the first quarter. Regionally, sales rose on a year-to-year basis in the Americas (29% increase), China (4.7%), and Asia Pacific/All Other (0.4%) in June. In this regard, John Neuffer, SIA president and CEO said that “sales into the Americas stood out in June, increasing nearly 30 percent year-to-year,” per the press release.

The increasing inclination toward digitization is supporting the rising demand for semiconductor chips. The work-from-home model has bumped up sales of PCs, laptops and other kind of computer peripherals. An increased demand for high-performance computer applications (HPC), gaming devices and peripherals, wearables, drones, and VR/AR devices is also being noted. It has also been observed that the pandemic-induced lockdown boosted demand for video games. Per market researcher NPD, consumers spent $11.6 billion on video game hardware, software and accessories during the June-end quarter, up 30% year over year and 7% from the March-end quarter, when spending hit $10.9 billion.

ETFs Riding the Tide

Investors seeking to make the most of the surging space in a diversified way could consider the following ETFs.

iShares PHLX Semiconductor ETF (SOXX Quick QuoteSOXX - Free Report) ) — up 18.2% year to date

This ETF follows the PHLX SOX Semiconductor Sector Index and offers exposure to 30 firms. The fund has amassed $3.47 billion in its asset base and trades in solid average volume of around 1 million shares a day. It charges 46 basis points (bps) in fees a year from investors. It flaunts a Zacks ETF Rank #1 (Strong Buy), with a High-risk outlook (read: ETFs to Watch Post Stellar Q2 Earnings From Nvidia).

VanEck Vectors Semiconductor ETF (SMH Quick QuoteSMH - Free Report) ) — up 20.1%

This fund provides exposure to 25 securities by tracking the MVIS US Listed Semiconductor 25 Index. The product has managed assets worth $2.63 billion, and charges 35 bps in annual fees and expenses. It is heavily traded with a volume of 4.7 million shares per day. The fund carries a Zacks ETF Rank #2 (Buy), with a High-risk outlook (read: ETFs to Watch as Nvidia Hits New High Ahead of Q2 Earnings).

SPDR S&P Semiconductor ETF (XSD Quick QuoteXSD - Free Report) ) — up 15.7%

This fund tracks the S&P Semiconductor Select Industry Index. The fund has an AUM of $535.1 million and an average daily volume of about 87,000 shares. It charges 35 bps in fees per year. The product sports a Zacks ETF Rank #1, with a High-risk outlook (see: all the Technology ETFs here).

Invesco Dynamic Semiconductors ETF (PSI Quick QuotePSI - Free Report) ) — up 19.1%

This fund tracks the Dynamic Semiconductor Intellidex Index, holding 31 securities in its basket. The product has an AUM of $288.5 million and sees moderate average daily volume of 37,000 shares. Expense ratio is 0.58%. PSI sports a Zacks ETF Rank #1, with a High-risk outlook (read: 5 Sector ETFs to Buy at a Bargain Price).

First Trust Nasdaq Semiconductor ETF (FTXL Quick QuoteFTXL - Free Report) ) — up 12.4%

This fund offers exposure to the most-liquid U.S. semiconductor securities based on volatility, value and growth by tracking the Nasdaq U.S. Smart Semiconductor Index. FTXL has accumulated $46.4 million in AUM. Average trading volume is light at around 14,000 shares and expense ratio is 0.60%. FTXL has a Zacks ETF Rank #2 (read: Intel Beats, Guides Lower: ETFs in Focus).

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