SMH: A Concentrated Play on AI and Semiconductor Growth

The VanEck Semiconductor ETF (NASDAQ:SMH) is a buy due to strong momentum and its focus on AI-driven growth and semiconductors supply chain growth. Fundamentally, it is a must-have in a core portfolio due to its potential for gains from these tailwinds.

The VanEck Semiconductor ETF (SMH) has emerged as a compelling investment opportunity, driven by strong momentum and its focus on AI-driven growth and semiconductors supply chain growth. Fundamentally, it is a must-have in a core portfolio due to its potential for gains from these tailwinds.

The global equity markets have rallied sharply in 2025, driven by a confluence of trade de-escalation, AI-driven technological innovation, and a weakening U.S. dollar [1]. The U.S.-Japan trade agreement, which reduced tariffs to 15% from the initially threatened 25%, and the CHIPS Act's catalytic effect on semiconductor and AI infrastructure demand have fueled this momentum [1]. The AI infrastructure sector, represented by the VanEck Semiconductor ETF (SMH), has rebounded 18% year-to-date after a 30% drop in early 2025 [1].

The VanEck Semiconductor ETF (SMH) is a concentrated play that works due to its exposure to the semiconductor and AI sectors, which are benefiting from these favorable macroeconomic conditions [3]. The ETF seeks to gain from the AI tailwinds and overall semis supply chain growth, making it an attractive addition to a core portfolio.

However, investors should be cautious about the sustainability of these gains. Global margin debt levels have risen to record highs, with the U.S. alone seeing a 12% increase in leveraged buyout activity since the start of 2025 [1]. Central bank policies are another wildcard, with the European Central Bank and Bank of Japan cutting rates, creating a divergence that could destabilize the dollar [1]. Additionally, the August 1, 2025, deadline for finalizing U.S.-EU and U.S.-China trade agreements remains a critical risk, which could trigger renewed volatility [1].

Despite these risks, the VanEck Semiconductor ETF (SMH) offers compelling long-term growth prospects. The AI infrastructure sector, led by NVIDIA (NVDA), TSMC (TSM), and Dell Technologies (DELL), is poised to benefit from sustained demand for semiconductors and cloud computing [1]. Investors should prioritize firms with U.S. subsidies and diversified supply chains to mitigate potential tariff-driven cost increases for semiconductor materials [1].

In conclusion, the VanEck Semiconductor ETF (SMH) is a strategic investment for investors seeking exposure to the AI-driven growth and semiconductor supply chain growth sectors. However, investors should remain vigilant about the macroeconomic risks and ensure their portfolios are diversified to navigate this dynamic landscape.

References:

[1] https://www.ainvest.com/news/global-market-rally-trade-optimism-time-invest-ai-driven-tech-emerging-market-exposure-2507/
[2] https://www.investing.com/analysis/retail-and-semis-signal-caution-despite-market-highs-200664463
[3] https://seekingalpha.com/article/4805322-smh-etf-concentrated-play-that-works
[4] https://blockchain.news/flashnews/senate-democrats-oppose-resuming-china-chip-sales-impact-on-semiconductor-stocks-and-crypto-markets