Key insights
- The VanEck Semiconductor ETF (SMH) has delivered strong returns driven by AI-related demand. Despite past gains, the outlook for semiconductor stocks remains positive due to continued investment in AI infrastructure and projected growth in global semiconductor equipment sales. Valuations are considered reasonable, suggesting further upside, although triple-digit returns are unlikely in the near term. The iShares Semiconductor ETF (SOXX) offers similar exposure with slightly more diversification.
Semiconductor stocks have unquestionably been one of the market's biggest winners coming out of the 2022 bear market. The artificial intelligence (AI) boom created unprecedented demand for the chips necessary to power the infrastructure. That's produced triple-digit gains for many semiconductor exchange-traded funds (ETFs) along the way.
One of those is the VanEck Semiconductor ETF (SMH +0.22%). Among the major nonleveraged semiconductor ETFs, its 51% average annual return over the past three years is the best of the bunch.
Naturally, that raises the question: Is it too late for chip stocks, or is there more upside ahead?
The case for chip stocks is pretty straightforward. As companies, governments, and others continue to build out AI capabilities, demand for the chips to run them also grows.
Global semiconductor equipment sales are expected to hit $156 billion by 2027. That would be a big jump from their current record high of $133 billion in 2025.
The big megacap tech companies continue to commit hundreds of billions of dollars to AI development. While there are questions about the long-term return on investment on all that spending, it's clear it won't end anytime soon. That's a strong bullish catalyst for chip stocks.
This ETF often gets compared to the iShares Semiconductor ETF (SOXX +0.15%) since they're easily the two biggest funds in this space. Here's a comparison of the two:
There's really not much difference between these two ETFs. The biggest differentiator is the weighting cap. The cap makes the iShares Semiconductor ETF only slightly more diversified (with modestly less Nvidia exposure). Other than that, you get similar large-cap exposure.
The investment case for chip stocks is still strong. The sector is in the midst of a multiyear growth cycle, and valuations are reasonable enough that there's still upside.
I wouldn't necessarily expect triple-digit returns again over the next 12 months, but this is still a sector with a very positive narrative.