Riding the AI Wave: Why Semiconductor Exposure Through ETFs Could Be Your Smart Play in This Tech Cycle

The Semiconductor Story Behind the AI Explosion

Artificial intelligence isn’t just reshaping how we work—it’s fundamentally transforming the infrastructure that powers it. At the heart of this revolution lies semiconductors. From the GPUs powering data center operations to the chips embedded in autonomous vehicles, semiconductors are the invisible foundation of the entire AI ecosystem.

Consider the scale: the global AI market is projected to expand from $189 billion in 2023 to $4.8 trillion by 2033. That’s roughly a 25-fold jump over a single decade. This explosive growth creates an obvious opportunity for investors wanting exposure to AI without betting everything on a single company or technology.

Why Individual AI Stocks Feel Too Risky

Here’s the uncomfortable truth about AI investing: today’s market darling could become tomorrow’s laggard. The technology landscape shifts rapidly, and betting your capital on one or two companies in such a dynamic space is nerve-wracking. Even if you identify the right players now, execution risks and competitive pressures can derail even the most promising performers.

This is where diversified exposure becomes attractive. An exchange-traded fund (ETF) focused on semiconductors provides portfolio diversification while maintaining your core AI thesis. Unlike mutual funds, ETFs offer the flexibility of individual stock trading while spreading your risk across multiple players in the semiconductor value chain.

The VanEck Semiconductor ETF: A Deep Dive

Among the various semiconductor and AI-focused ETFs available, the VanEck Semiconductor ETF (NASDAQ: SMH) stands out for solid fundamentals and proven longevity. Launched in late 2011, it has weathered multiple market cycles, making it a more established option than many of the AI-specific ETFs that launched more recently.

Performance Track Record

The numbers tell a compelling story:

Through November 24, 2025, the fund has delivered 40.1% year-to-date returns—nearly three times the S&P 500’s 15.3% performance. Over three years, the outperformance is even more dramatic: a 210% cumulative return compared to the broader market’s 73.9%.

Fund Structure and Management

The VanEck Semiconductor ETF tracks the MVIS US Listed Semiconductor 25 Index, which comprises companies across the entire chip manufacturing ecosystem. The fund maintains 25 holdings, all listed on major U.S. exchanges, with a modified market-cap weighting that caps any single position at 20% maximum. This structure prevents excessive concentration while maintaining meaningful exposure to market leaders. The expense ratio sits at 0.35%, reasonable for a thematically focused fund.

Unpacking the Top Holdings

The fund’s performance is driven by exposure to three distinct segments within semiconductors:

Chip Designers and Manufacturers

Nvidia (18.5% portfolio weight) absolutely dominates this space with a $4.4 trillion market cap. Wall Street projects 46.6% annualized earnings growth over the next five years. Over the past three years, Nvidia shares have returned 1,010%—a staggering performance driven by its near-monopoly on high-performance AI chips.

Broadcom (8.44% weight) complements this exposure by serving AI data centers with custom chips and networking infrastructure. The company’s 645% three-year return reflects strong execution and the benefits of its 2023 VMware acquisition. Advanced Micro Devices (5.86% weight) provides diversified CPU and GPU exposure to the AI infrastructure buildout.

Intel (5.42% weight), though showing modest 24.9% three-year returns, represents a deeper value play in the semiconductor space with potential upside as AI infrastructure deployment accelerates.

The Foundry Player

Taiwan Semiconductor Manufacturing (TSMC) occupies a unique position as the world’s primary outsourced chip manufacturer. With $1.2 trillion in market cap and 9.69% portfolio weight, TSMC serves as the manufacturing backbone for many of the semiconductor leaders in this fund. Its 265% three-year return demonstrates how AI demand has strengthened its business fundamentals.

Equipment and Materials Suppliers

Applied Materials (5.66% weight), ASML Holding (5.59% weight), Lam Research (5.48% weight), and KLA Corp (4.81% weight) make up roughly 21% of the portfolio combined. These companies provide the manufacturing tools and materials that enable chip production at cutting-edge nodes. While their returns have been more modest (ranging from 67.8% to 237% over three years), they benefit directly from accelerating capital spending as major tech companies invest in AI infrastructure.

Why Semiconductor Demand Stays Strong

Three factors support the continued outperformance thesis:

Data Center Buildout: Major technology companies continue expanding capital expenditures for AI infrastructure. This spending directly drives demand for server chips, networking equipment, and foundry services.

Autonomous Vehicles: Regulatory progress toward legal autonomous vehicle deployment in the U.S. will require specialized semiconductor solutions. This market is closer to mainstream adoption than many investors realize.

Robotics and Edge AI: Humanoid robots and edge computing applications are poised for accelerated deployment sooner than conventional wisdom suggests. Each deployment adds to semiconductor demand across the ecosystem.

The Diversification Advantage

Holding the VanEck Semiconductor ETF rather than concentrating capital in Nvidia or other individual chipmakers offers meaningful risk reduction. You gain exposure to the entire AI infrastructure story while avoiding the concentration risk of single-stock picks. The fund’s structure ensures no position exceeds 20% weighting, preventing overexposure to any single company.

Total net assets of $34.8 billion provide ample liquidity, so you won’t face trading challenges typical of smaller, more niche ETFs.

A Rational Approach to AI Investing

The AI opportunity is real and substantial, but the pathway to capturing returns matters. Rather than attempting to time individual company performance or pick winners in a rapidly evolving landscape, semiconductor ETF exposure offers a more systematic, diversified approach.

The VanEck Semiconductor ETF delivers this exposure through a seasoned fund structure with proven performance across multiple market cycles. Its historical 210% three-year return isn’t guaranteed to repeat, but the underlying thesis—that semiconductor demand from AI infrastructure expansion will remain robust—appears sound based on current technology trends and corporate capital allocation patterns.