Semiconductor ETFs surge as AI chip demand fuels record growth in tech sector

The tech sector is set to lead earnings growth within the S&P 500 for 2026 and 2027. Semiconductor stocks, in particular, are drawing attention as demand for AI chips continues to surge. The VanEck Semiconductor ETF (SMH) stands out with strong performance, backed by heavyweights like NVIDIA and Taiwan Semiconductor.

The VanEck Semiconductor ETF (SMH) has become a key player in the AI-driven market. Its top holdings include NVIDIA at roughly 19-21%, Taiwan Semiconductor at 10-10.7%, and Broadcom at 8-8.4%. AMD and Micron Technology also feature prominently, with shares around 5% each. These companies dominate due to soaring demand for AI accelerators and memory chips, with TSMC reporting over 50% annual growth in AI-related sales.

The ETF's concentrated portfolio—where the top 10 stocks make up 73% of its weight—reflects its focus on high-growth semiconductor firms. While its trailing 12-month price-to-earnings (P/E) ratio sits at 43, the forward P/E drops to 23, suggesting optimism about future earnings. Analysts expect SMH to outperform broader tech ETFs in the short term, though direct comparisons with Nasdaq or general IT funds remain limited. Industry experts note that the AI infrastructure boom is still in its early phases. The current semiconductor cycle shows no signs of slowing, as chipmakers continue expanding production to meet demand from data centres and AI development.

The VanEck Semiconductor ETF's strong positioning highlights the sector's growth potential. With AI adoption accelerating, companies like NVIDIA and TSMC are likely to keep driving returns. Investors are watching closely as the semiconductor boom extends into the coming years.