The semiconductor market made a steady recovery in 2024, ending the year on a high, as sales witnessed a solid jump in the fourth quarter. This surge in sales was largely driven by optimism surrounding artificial intelligence (AI), particularly generative AI.

However, semiconductor stocks, especially those linked to AI, faced a dip last month after the introduction of DeepSeek, a cost-effective AI model from China. The emergence of DeepSeek raised fears about the potential challenge to the dominance of U.S. tech companies in the AI sector. Despite initial concerns, these fears subsided and optimism began to return.

In light of this, investing in semiconductor funds like DWS Science and Technology A (KTCAX Quick QuoteKTCAX - Free Report) , T. Rowe Price Science & Tech (PRSCX Quick QuotePRSCX - Free Report) and Fidelity Select Technology Portfolio (FSPTX Quick QuoteFSPTX - Free Report) thus appear to be a prudent choice.

Stellar 2024 for the Semiconductor Market

According to the Semiconductor Industry Association (SIA), global semiconductor sales reached $627.6 billion in 2024, a solid 19.1% jump from the previous year’s total of $526.8 billion. The fourth quarter alone saw a 17.1% year-over-year jump in sales, totaling $170.9 billion, and a 3% rise sequentially.

This data aligns with a separate Gartner report, which reported that global semiconductor sales totaled $626 billion in 2024, up 18.1% year over year. Gartner also projected sales to reach $705 billion this year.

Rising demand for semiconductors in data centers has been a major factor driving sales in 2024. The memory market also played a crucial role in boosting semiconductor sales, with revenues surging 71.8% from the previous year.

Semiconductor Market on Track to Expand

Several technology companies have heavily invested in AI development, with businesses incorporating AI into their products experiencing significant growth in recent years. Last month, Chinese startup DeepSeek made waves in the U.S. AI market by launching a free, open-source assistant that claims to operate on lower-cost chips and requires less data.

The company said that developing its AI model cost under $6 million, which raised questions about whether AI would continue to drive demand across the entire supply chain, from semiconductor manufacturers to data centers.

As a result, tech and semiconductor stocks saw a sharp decline. However, analysts quickly reassured that the Chinese model’s impact had been overstated. Experts remain optimistic about AI’s enormous untapped potential, expecting continued growth in demand as more semiconductor companies enter the AI space.

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).

DWS Science and Technology Afund seeks growth of capital. Under normal circumstances, KTCAX invests at least 80% of net assets in common stocks of U.S. companies in the technology sector. As of the last filing,

DWS Science and Technology A fund has a track of positive total returns for over 10 years.  Specifically, KTCAX’s returns over the three and five-year benchmarks are 11.9% and 20.3%, respectively. DWS Science and Technology A fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.87, which is lower than its category average of 1.03%.

To see how this fund performed compared to its category and other #1 or 2 Ranked Mutual Funds, please click here.

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 11.8% 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 Technology Portfolio fund seeks capital appreciation by investing most of its assets in common stocks of companies principally engaged in offering, using, or developing products, processes, or services that will provide or benefit significantly from technological advances and improvements.

Specifically, Fidelity Select Technology Portfolio’s returns over the three and five-year benchmarks are 10.9% and 22.2%, respectively. FSPTX has a Zacks Mutual Fund Rank #1 and its annual expense ratio of 0.62% is lower than the category average.

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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