Tech ETFs: 1 to Buy Now & 1 to Avoid in 2026
- The technology sector’s sluggish start to February 11, 2026, presents a mixed bag for investors.
- Recent weeks have seen a significant downturn in software equities, with approximately $1 trillion in market value shed as of February 6, 2026.
- The First Trust Cloud Computing ETF (NASDAQ: SKYY), with approximately $2.47 billion in assets under management, exemplifies this caution.
The technology sector’s sluggish start to , presents a mixed bag for investors. While the broader tech landscape shows signs of weakness, creating potential buying opportunities, discerning between resilient and vulnerable areas is crucial. The performance of tech-focused exchange-traded funds (ETFs) is proving particularly disparate, highlighting the need for careful selection.
Software Stocks Under Pressure
Recent weeks have seen a significant downturn in software equities, with approximately $1 trillion in market value shed as of . This decline is largely attributed to growing concerns that emerging artificial intelligence (AI) tools may render some existing software programs obsolete. Cloud computing stocks, in particular, are feeling the pressure, prompting a cautious outlook for ETFs heavily invested in this space.
First Trust Cloud Computing ETF (SKYY): A Cautionary Tale
The First Trust Cloud Computing ETF (NASDAQ: SKYY), with approximately $2.47 billion in assets under management, exemplifies this caution. The ETF’s holdings, including prominent names like Adobe and Salesforce, are directly exposed to the disruption potentially caused by AI agents. While the fund contains quality stocks, the current market environment resembles a “falling knife,” suggesting investors may be better served waiting for clearer signs of stabilization before entering a position.
The ETF’s current price as of , is $113.07, down 2.34% for the day. This performance underscores the broader anxieties surrounding the cloud computing sector.
VanEck Semiconductor ETF (SMH): A Beacon of Strength
In contrast to the struggles of cloud computing ETFs, the VanEck Semiconductor ETF (NASDAQ: SMH) is demonstrating notable resilience. Up 11.5% year-to-date, this $43 billion ETF is benefiting from the continued demand for semiconductors, driven by the expansion of AI technologies. The fund’s strong performance suggests that the “pick-and-shovel” approach to AI investing – focusing on the companies providing the essential infrastructure – remains a viable strategy.
Nvidia’s Dominance and the AI Boom
The VanEck Semiconductor ETF’s success is heavily influenced by its largest holding, Nvidia, which accounts for 18.3% of the portfolio. Recent commentary from Nvidia CEO Jensen Huang, stating that demand is “sky high,” reinforces the positive outlook for the semiconductor industry. Similarly, Broadcom CEO Hock Tan described AI chip demand as “insatiable,” further bolstering confidence in the sector. This suggests the AI build-out is not only underway but also sustainable, potentially supporting continued growth for the ETF.
The ETF’s top 10 holdings collectively represent 75% of its total value, with Taiwan Semiconductor Manufacturing and Broadcom comprising an additional 18%. This concentration highlights the ETF’s reliance on a relatively small number of key players in the semiconductor market.
Navigating the Tech ETF Landscape
The divergent performance of these two ETFs – SKYY and SMH – underscores the importance of sector-specific analysis within the broader technology landscape. While the Nasdaq-100 index, a benchmark for tech stocks, is down 2% year-to-date, the VanEck Semiconductor ETF’s gains demonstrate that opportunities still exist for discerning investors. The Technology Select Sector index, encompassing 70 stocks across seven industries, further illustrates the heterogeneity of the tech sector.
The Invesco Nasdaq 100 ETF (QQQM) offers another avenue for tech exposure, tracking the 100 largest non-financial companies on the Nasdaq exchange. Launched in , QQQM boasts a lower expense ratio (0.15%) compared to its predecessor, the Invesco QQQ Trust ETF (QQQ, 0.20%), potentially offering cost savings for long-term investors.
A Word of Caution and Long-Term Perspective
Despite the positive outlook for semiconductor ETFs, investors should remain mindful of potential risks. The VanEck Semiconductor ETF’s heavy reliance on Nvidia, while currently beneficial, could introduce volatility if Nvidia’s performance falters. The broader tech sector remains susceptible to macroeconomic factors and evolving technological trends.
successful ETF investing requires a long-term perspective and a thorough understanding of the underlying sectors and companies involved. While short-term market fluctuations are inevitable, a well-diversified portfolio focused on fundamentally sound companies can position investors for long-term success.