SMH: A Scalable Play on the $1T+ Semiconductor Growth Wave

The opportunity here is not incremental-it is structural. The semiconductor industry is on the cusp of a multi-year expansion, with market size projected to grow from a range of $630 billion to $680 billion in 2024 to $1 trillion to $1.1 trillion by 2030. This isn't just a cyclical upturn; it's a secular wave driven by the insatiable demand for compute power from artificial intelligence and the data centers that fuel it. The growth trajectory is set to accelerate, with AI expected to push the industry's average annual growth rate well above the 9 percent recorded from 2014 to 2024.

For a growth investor, the critical question is how to capture this expansion efficiently. The ETF's structure is designed for scalability. By targeting the most liquid companies in the industry based on market capitalization and trading volume, it focuses on the largest, most established players. These are typically the industry leaders who are not just riding the wave but are actively shaping it-companies at the forefront of AI chip design, advanced manufacturing, and next-generation packaging. This approach provides a direct, low-friction lever to the core growth segments.

The model also enhances penetration. With a global scope that includes both domestic and U.S.-listed foreign companies, the ETF gains broader representation across the semiconductor value chain. This is crucial because the growth is not confined to any single region or business model. It includes the high-growth, often undervalued segments like OEMs with in-house design and captive chip designers, which traditional sales-based estimates may overlook. By capturing these leaders, the ETF aims to participate in the entire scalable growth story, from design to advanced packaging, ensuring exposure to the segments with the highest momentum.

Portfolio Structure and Growth Capture

The ETF's concentrated portfolio is its primary tool for capturing explosive growth. With only 26 holdings, it avoids the dilution of a broad market fund. The top five names alone command over 48% of assets, creating a powerful lever on the industry's leaders. This includes NVIDIA at 19.17%, the undisputed AI chip architect, alongside TSMC at 10.45%, the indispensable foundry, and other critical players like Broadcom, Micron, and ASML. This focus ensures the fund is deeply exposed to the specific companies driving the $1 trillion+ growth wave.

The results speak for themselves. The fund's 49.17% total return in 2025 is a clear signal of strong growth capture. That performance, part of a pattern of double-digit annual gains, demonstrates how well the concentrated structure works when the top holdings are performing. It's a direct reflection of the ETF's thesis: by betting heavily on the leaders, it can amplify returns from the sector's most powerful performers.

This approach, however, comes with a trade-off. The fund is non-diversified, meaning it is not required to spread its investments across a wide array of companies. While this allows for the concentrated, high-conviction bets that drive returns, it also means the portfolio's fate is tied more closely to the fortunes of its largest holdings. A stumble by any of the top five could have a more pronounced impact than in a diversified fund. For a growth investor, the setup is clear: the structure is built to maximize upside from the leaders, but it demands a tolerance for the volatility that comes with such a focused bet.

Forward Catalysts, Risks, and Key Metrics

The path to sustaining the ETF's growth trajectory hinges on a few powerful, forward-looking forces. The most direct catalyst is the continued, massive spending on AI infrastructure. As data centers become the new industrial base, the demand for high-performance chips will remain robust. This spending cycle is not a short-term fad but a multi-year build-out, providing a clear runway for the fund's top holdings like NVIDIA and TSMC. Another key driver is technological advancement, particularly in semiconductor manufacturing. The adoption and refinement of extreme ultraviolet (EUV) lithography and other next-generation processes are essential for producing the increasingly complex chips that power AI. Companies leading these efforts, such as ASML and TSMC, stand to benefit directly from this innovation wave.

Geopolitical developments also loom large. The U.S. government's landmark investments in domestic chipmaking, aimed at reversing a decades-long decline in manufacturing capacity, could reshape the global supply chain. While this creates near-term uncertainty, it also signals a long-term commitment to strengthening U.S. leadership and could funnel capital into the very companies the ETF holds. For a growth investor, these are the levers that will determine whether the $1 trillion+ TAM materializes as expected.

Yet, the path is not without significant risks. The semiconductor industry is inherently cyclical, and a downturn in capital expenditure cycles could quickly reverse the current expansion. Intense competition among the fund's top holdings-NVIDIA, TSMC, Broadcom, and others-could pressure margins and slow growth if pricing power wanes. Regulatory changes, particularly those impacting international trade or foreign investment in critical technology, also pose a material threat to supply chains and market access.

For investors, the key is to monitor the growth rates of the ETF's core holdings. The performance of NVIDIA and TSMC will be especially telling, as they are the dual engines of the AI hardware stack. Their revenue trajectories and capital expenditure plans are leading indicators of the broader industry's health. Equally important is tracking overall semiconductor industry sales forecasts. The consensus view of reaching $1 trillion by 2030 is ambitious, and any deviation from that path would signal a fundamental shift in the growth story the ETF is built upon. The bottom line is that this is a high-conviction, concentrated bet on a powerful trend. Success depends on the catalysts accelerating, while the risks serve as a reminder of the volatility embedded in such a focused play.