SMH Returned Over 120% in One Year. Is the VanEck Semiconductor ETF Still a Buy?
Key Points
The VanEck Semiconductor ETF (SMH) is up 120% over the past year and a 51% average annual return over the past three years.
Megacap tech companies' capital expenditure commitments and continued double-digit growth in chip equipment sales remain as bullish catalysts.
The semiconductor sector is only trading at 22 times forward earnings, not unreasonable for a high-growth sector.
- 10 stocks we like better than VanEck ETF Trust - VanEck Semiconductor ETF ›
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 (NASDAQ: SMH). Among the major nonleveraged semiconductor ETFs, its 51% average annual return over the past three years is the best of the bunch.
Will AI create the world's first trillionaire? Our team just released a report on the one little-known company, called an "Indispensable Monopoly" providing the critical technology Nvidia and Intel both need. Continue »
Naturally, that raises the question: Is it too late for chip stocks, or is there more upside ahead?
Image source: Getty Images.
Key takeaways
- SMH's outperformance was driven by its concentrated holdings, including an 18% weighting in Nvidia.
- Semiconductor equipment sales are expected to surge to $156 billion by 2027.
- Roughly one-quarter of SMH's portfolio is in equipment companies. This gives investors exposure to the entire supply chain, not just chip designers.
- The portfolio trades at roughly 22 times forward earnings, which is not unreasonable for a high-growth sector.
The semiconductor trade retains high demand
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.
The semiconductor investment case
The biggest question at this point might be valuation. You don't want to pay too much for an investment, even if it is one of the market's biggest growth stories. The VanEck Semiconductor ETF currently trades at a forward price/earnings (P/E) ratio of 22. That's reasonable given how fast this sector is growing.
One risk is that when growth rates slow or peak, valuations are likely to contract quickly. But I don't think that's a risk just yet.
SMH vs. SOXX: Which semiconductor ETF fits your portfolio?
This ETF often gets compared to the iShares Semiconductor ETF (NASDAQ: SOXX) since they're easily the two biggest funds in this space. Here's a comparison of the two:
| Metric | SMH | SOXX |
|---|---|---|
| Number of holdings | 26 | 30 |
| Expense ratio | 0.35% | 0.34% |
| Weighting | Market cap (20% cap) | Market cap (8% cap) |
| Top 10 concentration | 73% | 59% |
| 10-year annualized return | 33.2% | 30.3% |
| Best use case | Megacap sector concentration | Slightly more balanced megacap exposure |
Data source: SMH website, SOXX website, ETF Action.
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.
Should you buy stock in VanEck ETF Trust - VanEck Semiconductor ETF right now?
Before you buy stock in VanEck ETF Trust - VanEck Semiconductor ETF, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and VanEck ETF Trust - VanEck Semiconductor ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $573,160!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,204,712!*
Now, it’s worth noting Stock Advisor’s total average return is 1,002% — a market-crushing outperformance compared to 195% for the S&P 500. Don't miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
See the 10 stocks »
*Stock Advisor returns as of April 15, 2026.
David Dierking has positions in iShares Trust - iShares Semiconductor ETF. The Motley Fool has positions in and recommends Nvidia and iShares Trust - iShares Semiconductor ETF. The Motley Fool has a disclosure policy.
Recommended Articles
