Nvidia and TSMC have helped SMH outperform a rival chip fund as demand tied to AI grows. But a 41 P/E and large stakes in a handful of companies make it a concentrated bet.
Nvidia makes up 19% of the VanEck Semiconductor ETF, while Taiwan Semiconductor Manufacturing accounts for another 9%. Those holdings have helped SMH outperform a rival semiconductor ETF. They also tie its prospects closely to a small group of chipmakers. That cuts both ways.
The fund's reported price-to-earnings ratio is 41. That is a demanding valuation, though growth forecasts for several major holdings help explain why some investors may still find SMH attractive. Forecasts are not results. They cannot rule out a market pullback.
SMH charges a 0.35% annual expense ratio. Recent market summaries put its assets under management at roughly $71 billion to $74 billion, making it one of the largest semiconductor ETFs.
AI growth meets concentration
SMH tracks the MVIS U.S. Listed Semiconductor 25 Index. That index focuses on U.S.-listed chipmakers rather than the full semiconductor supply chain. Its five largest holdings are Nvidia, Taiwan Semiconductor Manufacturing, Advanced Micro Devices, Broadcom and Intel. Together, they make up about 45% of the fund. VanEck's semiconductor market commentary discusses how AI enthusiasm can exist alongside sharp selloffs.
Nvidia and TSMC have been among SMH's strongest growth drivers. Their combined 28% weight means their results can have a material effect on the fund. A weaker showing from either company could also weigh more heavily on SMH than on a less concentrated alternative.
TSMC raised its 2026 revenue growth outlook to above 40% and said it was increasing capital spending to meet demand for AI chips. The investment plans and outlook reflect the scale of demand expectations, but they do not guarantee that demand or growth will meet forecasts.
What the forecasts say
Growth figures for SMH's largest holdings are estimates, not guarantees. Nvidia is expected to increase revenue 91% in its current quarter and 65% in 2027. TSMC, the world's largest contract chip manufacturer, is targeting 47% growth this quarter. Analyst consensus points to 35% growth next year.
Those forecasts help put the fund's 41 P/E in context, but they do not prove its shares are cheap. TSMC's separate 2026 outlook called for revenue growth above 40%, alongside increased capital spending for AI-chip demand, according to a report on TSMC's outlook.
Other holdings have their own growth drivers. Memory chipmakers Micron and SK Hynix are described as growing even faster. Intel's earnings are expected to rise as it deploys its 14A process and expands its foundry business. Those forecasts depend on execution. They are not confirmed outcomes.
AI demand is the catalyst
The broader market is at a record level, and warnings of a possible pullback create a real tension for investors considering a high-growth fund. The evidence cited in the article points to ongoing AI demand as a possible source of support for chipmakers. Meta's Muse AI personal assistant received a warm reception.
Intel and AMD shares rose after Muse's debut. That price move alone does not show how much lasting chip demand the product will generate. Nvidia's company reporting and market commentary continue to point to AI demand as a major driver of semiconductor sentiment. Its large weight in SMH makes that especially relevant.
SMH is not the only way to build an investment portfolio. For readers weighing a focused sector fund against broader holdings, a beginner portfolio guide looks at index funds and blue-chip stocks as possible portfolio anchors. A concentrated semiconductor ETF serves a different purpose and carries a different risk profile.
How to weigh the bet
The difference between a promising industry and a suitable fund matters. SMH's gains over the past decade include returns from before the AI boom accelerated its performance. Over that period, both SMH and the iShares Semiconductor ETF outperformed the broader market. Past returns show what the funds have done. They do not show what comes next.
A sector ETF offers exposure to several chip companies through one investment. That does not make the exposure broad or evenly spread. About 45% of SMH is held in five companies, and Nvidia alone accounts for nearly one-fifth. The fund is a focused bet on semiconductor leaders and continued growth expectations.
For investors seeking high-growth exposure who can tolerate that concentration and the possibility of a pullback, SMH may be a compelling choice. It is not a substitute for a diversified core portfolio. A concentrated portfolio can capture more of a leading company's gains. It can also magnify the effect of disappointing results.
A high P/E adds another source of sensitivity because expectations already shape the valuation. Investors should separate revenue growth forecasts from realized earnings and share returns. SMH's upside case is credible, but it depends on continued execution by its largest holdings and sustained demand for AI-related chips.
