SMH: Leveraging AI and Onshoring Trends for Sustained Semiconductor ETF Growth

The VanEck Semiconductor ETF (SMH) has emerged as a standout performer in 2025, surging 40–42% year-to-date and outpacing broader indices like the S&P 500 and Nasdaq 100 according to market analysis. This momentum is driven by its strategic alignment with two of the most transformative forces in global markets: the AI revolution and the U.S. onshoring boom. For investors seeking to capitalize on structural growth in the semiconductor sector, SMH offers a compelling case study in sector-specific exposure and momentum investing.

Strategic Sector Exposure: Concentrated Bets on AI and Onshoring Winners

SMH's investment thesis is rooted in its focus on the 25 largest and most liquid semiconductor companies, with a heavy emphasis on U.S.-based firms. These include industry titans like NVIDIA (18.85% weighting), TSMC (9.79%), and Broadcom (8.09%), which collectively account for nearly 37% of the ETF's holdings. This concentration ensures direct exposure to companies at the forefront of AI infrastructure development.

NVIDIA's GPUs, for instance, are critical to training large language models, while TSMC's advanced manufacturing processes enable the production of cutting-edge chips required for AI and cloud computing.

The ETF's geographic tilt further amplifies its alignment with onshoring trends. U.S.-based companies make up 80% of SMH's holdings, benefiting from policy tailwinds like the CHIPS and Science Act of 2022. This legislation provides subsidies and incentives to bolster domestic semiconductor production, directly supporting firms like Intel and AMD, which are also key components of the fund according to market reports. As global supply chains shift toward resilience over cost efficiency, SMH's sector-specific focus positions it to capture the long-term value of these structural shifts.

Momentum Investing: Riding the AI and Capital Expenditure Wave

SMH's performance in 2025 has been fueled by a perfect storm of macroeconomic and sector-specific drivers. The ETF's beta of 1.54 reflects its heightened sensitivity to market swings, but this volatility has worked in its favor as AI demand accelerates. Q3 2025 saw particularly strong momentum, with inflows into semiconductor ETFs surging amid anticipation of lower interest rates and robust capital expenditures by tech giants. Microsoft and Amazon, for example, have committed billions to expand AI data centers, creating a surge in demand for high-performance semiconductors. The ETF's liquidity and transparency further enhance its appeal for momentum investors. With the top 10 holdings accounting for 74% of total assets, SMH mirrors the performance of semiconductor leaders that are central to the AI and cloud computing revolutions. This concentration allows investors to piggyback on the outsized returns of companies like NVIDIA, which has seen its stock price soar on the back of record AI chip sales. Additionally, SMH's rebound in extended trading hours following key earnings reports-such as NVIDIA's Q3 results-demonstrates market confidence in the sector's growth trajectory.

Risks and Considerations

While SMH's performance is impressive, its concentrated portfolio and high beta expose it to sector-specific risks. A slowdown in AI adoption or a shift in policy priorities could dampen its momentum. However, the structural nature of the onshoring and AI trends suggests these risks are manageable for investors with a long-term horizon. As noted by industry analysts, the semiconductor sector's growth is underpinned by irreversible shifts in global technology demand, making SMH a durable vehicle for capturing these gains.

Conclusion

The VanEck Semiconductor ETF exemplifies how strategic sector exposure and momentum investing can align with macroeconomic tailwinds to generate outsized returns. By focusing on the semiconductor industry's AI and onshoring leaders, SMH has not only outperformed broader markets but also positioned itself as a key beneficiary of structural growth drivers. For investors seeking to leverage these trends, SMH remains a compelling option-provided they are prepared to navigate the sector's inherent volatility.