This ETF Is Down 24% From Its Peak. Here's Why I'm Buying More.

If there's a rub with artificial intelligence (AI) stocks, even the mega-cap names with quality traits, it's that these names, broadly speaking, take away as fast or even faster than they give.

Just look at the VanEck Semiconductor ETF (NASDAQ: SMH). The largest exchange-traded fund (ETF) in its respective category, the $72.7 billion chip fund has long been a favored destination for market participants seeking multi-stock exposure to the AI infrastructure trade. Some retail investors have embraced this ETF as an Nvidia proxy, since Nvidia accounts for 20.2% of the fund's holdings.

The VanEck Semiconductor ETF is enduring hard times, but it can bounce back. Image source: Getty Images.

Favorable traits aside, this ETF epitomizes the give-and-take nature of the AI trade. Yes, the chip fund is up 41% year to date, but following another rough day for AI stocks on Monday, Nov. 2, this ETF is down 19.4% over the past month and resides 24.4% below its 52-week high. That's a bear market, but the pullback could prove a rare invitation to get involved in this bellwether tech ETF.

Bear market context needed

No amount of sugarcoating changes the fact that this ETF and its holdings are slumping, but context is important. While the current chip slump is one of the worst of the past 15 years, it's not comparable to the 2022 slide when semiconductor stocks plunged as earnings deteriorated alongside demand.

This time around, things are different because some marquee names, including Taiwan Semiconductor Manufacturing -- this ETF's second-largest holding -- are reporting solid earnings. In fact, some market observers argue that the acceleration of the AI build-out, not a slowdown, is what's afflicting chip stocks at the moment.

That implies investors are responding to hyperscalers' spending growth. But that's not a perfect assessment because the law of large numbers is kicking in, implying that capital expenditure (capex) growth is slowing while capex levels aren't materially declining. Translation: Spending growth is slowing, but demand for AI chips is not.

Add to that the much-discussed free-cash-flow slump hyperscalers are enduring in 2026 and 2027, due to AI spending, which is expected to evaporate in 2028, giving way to a credible recovery. Combine these factors with the fund's bear-market status, and I'm willing to wager that the VanEck Semiconductor ETF's risk/reward profile is appealing today.

Bearish conditions may be fleeting

Some professional investors are optimistic that the current AI sell-off has nearly run its course, and some are pointing to opportunity with Nvidia as a rebound play. If that thesis proves accurate, the VanEck ETF stands to benefit.

Other experts believe the AI pullback is creating across-the-board opportunities with tech stocks. By some accounts, some of the best tech equities to buy at the moment include Nvidia, Taiwan Semiconductor, Broadcom and Marvell Technology. Those stocks combine for more than 39% of the chip ETF's roster.

With all these factors in mind and acknowledging that a resurgence likely won't occur in a straight-line fashion, it could pay to be opportunistic with this chip ETF at year-end.

Todd Shriber has a position in the VanEck Semiconductor ETF. The Motley Fool has positions in and recommends Broadcom, Marvell Technology, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.