Why SPY, QQQ, and SMH Could Be 2026 ETF Powerhouses

As artificial intelligence (AI) reshapes global markets, strategic allocation to ETFs that capture both broad economic trends and AI-specific growth drivers is becoming increasingly critical. The semiconductor industry's "giga cycle," fueled by AI infrastructure spending, is set to redefine demand across compute, memory, and networking sectors by 2026. In this evolving landscape, the S&P 500 (SPY), Nasdaq-100 (QQQ), and Semiconductor Select Sector (SMH) ETFs emerge as compelling tools for investors seeking to balance diversification with high-conviction exposure to AI-driven innovation.

SPY: The Foundation of Broad-Market Resilience

The S&P 500, represented by SPY, offers a diversified portfolio spanning 28% in technology and 14% in financials. While its 2025 performance has faced volatility due to geopolitical and macroeconomic headwinds, its long-term historical returns-324.59% from 1999 to the present-underscore its role as a stable anchor in a growth-oriented portfolio. For 2026, SPY's broad exposure positions it to benefit from AI-driven economic expansion while mitigating sector-specific risks. As AI adoption permeates industries beyond tech, SPY's inclusion of healthcare, energy, and industrials ensures investors remain positioned for cross-sector innovation.

QQQ: Capturing AI Megacap Momentum

The Nasdaq-100, tracked by QQQ, has outperformed broader indices in 2024, driven by AI and semiconductor leaders. With 51% of its holdings concentrated in technology, QQQ is uniquely positioned to capitalize on the AI megacap boom. Nvidia's 220% gain in 2023 and continued dominance in 2024 exemplify the outsized influence of AI-focused firms within the index. Forward-looking data reinforces this trend: AI capital expenditures are projected to remain robust in 2026, with the Nasdaq 100 benefiting from structural AI growth and accommodative monetary policy. However, QQQ's concentration introduces volatility as seen in recent fluctuations tied to macroeconomic concerns. Investors seeking high-conviction exposure to AI's next phase should allocate meaningfully to QQQ.

SMH: Direct Access to the Semiconductor Giga Cycle

The Semiconductor Select Sector (SMH) ETF, focused on firms powering AI infrastructure, has delivered a 10-year return of 28.18% as of June 2024. The semiconductor industry is now in an unprecedented "giga cycle," with AI accelerators projected to grow from $100 billion in 2024 to $300–350 billion by 2029. By 2026, global semiconductor revenue is forecast to reach $975 billion, driven by 30%+ growth in logic devices and 40%+ expansion in memory markets. SMH's direct exposure to this boom-through holdings in chipmakers, equipment providers, and memory firms-positions it as a high-conviction play on AI's infrastructure layer. As Creative Strategies notes, the industry's value chain is being reshaped by AI, with high-bandwidth memory revenue alone expected to surge from $16 billion in 2024 to over $100 billion by 2030.

A Balanced, High-Conviction Strategy for 2026

Combining SPY, QQQ, and SMH creates a layered approach to AI-driven growth:
1. SPY provides macroeconomic resilience and diversification.
2. QQQ captures the momentum of AI megacaps and tech innovation.
3. SMH targets the semiconductor infrastructure underpinning AI's expansion.

This strategy mitigates the volatility inherent in concentrated tech bets while ensuring participation in the AI megatrend. As AI server spending climbs from $140 billion in 2024 to $850 billion by 2030, and ASIC development becomes central to hyperscaler roadmaps, the interplay between broad markets, tech leaders, and semiconductor enablers will define 2026's investment landscape.

For investors, the case is clear: a strategic allocation to SPY, QQQ, and SMH offers a roadmap to navigate-and profit from-the AI revolution.