This article takes a closer look at the recent run and near-term prospects for the VanEck Semiconductor ETF (SMH). It digs into how AI-driven demand, earnings momentum, and the industry’s structure shape risk and opportunity for chip stocks. There’s also plenty to discuss around valuation, macro risks, and just how much SMH leans on a handful of mega-cap processors.
What’s driving SMH’s recent performance
Over the past three years, SMH has shot up faster than the broader tech benchmarks. AI-related demand and strong earnings from top chipmakers have driven much of this surge.
The fund’s fate really hangs on a small group of dominant players. Their capital spending and product cycles ripple through the entire semiconductor supply chain.
AI demand and earnings momentum
The AI boom has created a strong revenue backdrop for many semiconductor companies. Demand for high-performance GPUs, memory, and specialized processors has pushed earnings higher, boosting valuation multiples for SMH’s core holdings.
Industry outlook and growth projections
Looking past the next few quarters, most expect the global semiconductor market to grow meaningfully. Industry projections keep pointing to a multi-year expansion fueled by AI, data centers, and automotive tech.
Scaling AI infrastructure will require major capital investment. That’s not a small ask.
- The global semiconductor industry could hit $975 billion in sales by 2026, up about 26% from 2025.
- Some even see the market reaching $2 trillion within the next decade as AI adoption spreads and supply chains mature.
Manufacturers are gearing up for massive investments in AI-ready capacity. Many firms still seem early in their buildouts, so earnings momentum could stick around for a while.
Valuation, concentration, and risk considerations
Even with all this demand, investors have to weigh macro risks. High inflation, sluggish GDP growth, or more monetary tightening could chill the mood and compress multiples if growth slows.
Valuation and earnings
SMH trades at about 26x next-12-month earnings. That’s not exactly cheap, and it deserves scrutiny if sector growth stumbles or demand shifts.
Valuation risk ramps up if macro headwinds get worse or competition starts to shift pricing power in the market.
Portfolio concentration and top holdings
SMH is a market-cap-weighted ETF with a heavy tilt toward a few names. Nvidia alone makes up nearly 18% of the fund, and the top six holdings represent about 55% of the portfolio.
So, in practice, SMH is really a mega-cap bet on a tight group of firms, like:
- Nvidia
- TSMC
- Broadcom
- Intel
- AMD
- Micron
This setup can juice returns when these firms do well, but it also concentrates risk. A handful of stocks and their cycles end up driving most of the action, so broader exposure feels a bit dependent on just a few big players.
Investment thesis and what to watch
I’d argue valuation still looks reasonable as long as earnings growth keeps up. With AI-driven demand leading the charge, SMH could offer solid upside into mid-2026—unless macro conditions throw a wrench into ongoing AI infrastructure investments.
Strategic takeaways for investors
If you’re thinking about SMH, here are a few things to keep in mind:
- Growth durability: Keep an eye on AI capex spillovers and data-center demand, since they anchor earnings for SMH’s biggest names.
- Valuation discipline: Don’t lose sight of that 26x forward earnings. Weigh it against earnings visibility and the potential for multiples to expand if growth stays strong.
- Risk awareness: The concentration risk is real. Think about how sector diversification (or the lack of it) might shape your portfolio’s resilience.
Important disclosures
Just a heads-up—this is syndicated content, and investment recommendations aren’t one-size-fits-all. The Motley Fool holds positions in some of the companies mentioned here.
The analysis above comes straight from the author’s perspective, shaped by market conditions through June 2026. It’s meant to add to your own research and whatever professional advice you trust.
Here is the source article for this story: Is the VanEck Semiconductor ETF the Right ETF to Own as We Head Into June?