VanEck Semiconductor SMH ETF (NASDAQ:SMH) Surges 42% YTD: Is $430 Next as AI Spending Explodes?

VanEck Semiconductor ETF (NASDAQ:SMH) – America’s Chip Powerhouse Fueling the AI Decade

The VanEck Semiconductor ETF (NASDAQ:SMH) has emerged as one of 2025’s most compelling performers, showcasing the structural transformation of global technology supply chains and America’s semiconductor resurgence. As of November 5, 2025, SMH trades around $359.50, up 1.91% on the day and more than 42% year-to-date, comfortably outperforming both the S&P 500 (+8.6%) and Nasdaq 100 (+11.9%). With $35.49 billion in assets under management and a 0.35% expense ratio, SMH remains one of the most liquid semiconductor ETFs, averaging over 8 million shares in daily volume. The ETF’s dominance highlights how institutional capital is consolidating around U.S. semiconductor leadership amid record AI infrastructure spending and government incentives.

Portfolio Composition and Strategic Weighting

SMH mirrors the MVIS U.S. Listed Semiconductor 25 Index, focusing on the 25 largest and most actively traded semiconductor companies. Approximately 80% of holdings are U.S.-based, while the remaining 20% are spread between Taiwan, the Netherlands, and Bermuda—regions that play vital roles in chip fabrication and design. The top 10 holdings account for nearly 74% of total fund weight, led by NVIDIA (NVDA), Taiwan Semiconductor Manufacturing (TSM), Broadcom (AVGO), AMD, and Intel (INTC). Collectively, these names trade around 35× 2025 earnings, compressing to 23× 2027 projections as their combined EPS growth rate exceeds 45%, signaling the sector’s sustained profitability through the AI cycle.

Liquidity, Efficiency, and Market Accessibility

The ETF’s liquidity advantage remains a decisive factor for institutions and active traders. Compared to Deutsche Bank’s CHPS ETF, which trades roughly 5,000 shares per day, SMH’s 8 million-share daily average volume ensures narrow spreads and efficient execution. It also outpaces Vanguard’s VGT ETF, which averages about 528,000 shares, reinforcing SMH’s position as the go-to vehicle for scalable exposure. Despite a higher expense ratio than VGT (0.35% vs 0.09%), SMH’s return profile justifies the premium—its nearly 50% YTD gain far outstrips VGT’s 28%.

U.S. Semiconductor Policy Tailwinds

SMH’s bullish trajectory is deeply tied to American industrial policy. The CHIPS and Science Act of 2022, extended through 2032, provides billions in subsidies and a 25% tax credit for domestic chip manufacturing. The objective: triple U.S. semiconductor output and secure technological sovereignty by the next decade. The act has already catalyzed over $200 billion in private-sector commitments from Intel, Samsung, TSMC, NVIDIA, and Texas Instruments, all expanding or building new facilities across Arizona, Texas, and New York. Simultaneously, U.S. tariffs on China have redirected supply chains, boosting domestic capacity as the U.S. pursues self-sufficiency in advanced chip production.

AI Data Center Expansion and Demand Drivers

AI remains the strongest growth vector. In 2025 alone, Microsoft, Amazon, Alphabet, and Meta allocated more than $291 billion in capital expenditures toward data-center expansion—an increase of 67% year-over-year. NVIDIA’s planned $100 billion investment into its AI compute infrastructure and OpenAI’s partnership to deploy 10 gigawatts of NVIDIA systems highlight the scale of future chip demand. Each AI model iteration requires exponentially more silicon, driving record orders for high-performance GPUs, memory modules, and networking semiconductors—all key components within SMH’s portfolio.

Performance Versus Peers and Market Dynamics

Compared with sector peers, SMH maintains a superior long-term track record. The SPDR Semiconductor ETF (XSD) employs equal weighting and offers greater diversification but underperforms SMH’s concentrated approach, which captures leadership-driven returns. The Invesco Semiconductor ETF (PSI) uses a quantitative model incorporating momentum and earnings expansion but lacks SMH’s liquidity depth. Over the past five years, SMH has outperformed SPY, QQQ, PSI, and XSD, confirming that concentration in market leaders has delivered higher risk-adjusted returns.

Geopolitical Context and Risk Factors

Despite structural tailwinds, geopolitical exposure remains a crucial variable. Taiwan still produces roughly 44.2% of advanced chips imported into the United States, with China accounting for 16.9%. Any escalation in the Taiwan Strait could severely disrupt the global semiconductor supply chain. Analysts project that if China were to act militarily before 2027, global chip supply could be cut by more than half, instantly pressuring margins across the SMH portfolio. Meanwhile, delays in U.S. factory buildouts could postpone the CHIPS Act’s benefits, particularly as new fabs—often costing $10–20 billion each—require years to reach full production capacity.

Valuation Landscape and Earnings Momentum

The ETF’s underlying holdings demonstrate robust forward visibility. Based on consensus forecasts, the top 10 companies within SMH are expected to grow earnings by an average of 126.8% between 2025–2027, pushing their blended P/E ratio down from 63× to 24× as operating leverage improves. NVIDIA, AMD, and Broadcom continue to drive much of this expansion, benefiting from surging AI chip sales, enterprise cloud demand, and next-generation edge computing adoption. Even Micron (MU) and Lam Research (LRCX) have recovered sharply from cyclical troughs, with improving memory pricing and equipment orders feeding back into ETF performance.