Semiconductor Sector Deep Dive Finds AI Growth Driving ETFs and Chip Stocks Higher

The semiconductor sector has been on a wild ride lately, as the artificial intelligence (AI) boom has created massive interest in the market from investors, analysts, and consumers.

AI is the hottest new technology on the market, offering benefits to the businesses and individuals that use it. It can easily automate tasks, write code, generate images and video, and so much more. This has spurred increased use of AI and the need for the data centers that power this technology. With that in mind, it makes sense that the semiconductor sector would be closely tied to AI’s growth, which has resulted in strong earnings from chipmakers, such as Nvidia (NVDA), TSMC (TSM), and Advanced Micro Devices (AMD).

Of course, that doesn’t mean AI adoption comes without challenges. Current issues include the increased demand for server components pushing prices higher in the AI and consumer sectors, supply chain issues as companies readjust production to keep up with AI demand, and ongoing trade war concerns, such as export bans on some high-end Blackwell AI graphics processing units (GPUs) from President Trump’s administration.

Semiconductor Snapshot

Turning to exchange-traded funds (ETFs) that track the semiconductor sector, VanEck Semiconductor ETF (SMH) and iShares Semiconductor ETF (SOXX) stand out as two of the top candidates traders might consider a stake in.

• VanEck Semiconductor offers a condensed portfolio of exposure to semiconductor stocks, with its top 10 holdings making up 75.98% of its $33.77 billion in total assets. It pays out a dividend of $1.071 per share annually, representing a yield of 0.32%, versus a sector average of 1.087%. Its biggest winner is Broadcom (AVGO), which makes up 8.64% of its holdings, while ON Semiconductor (ON) is its biggest loser and represents 0.44% of its holdings.
• iShares Semiconductor offers a more diversified portfolio of exposure to semiconductor stocks, with its top 10 holdings making up 59.67% of its $15.28 billion in total assets. It pays out a dividend of $0.541 per share annually, representing a yield of 0.58%. Its biggest winner is Credo Technology, which makes up 1.97% of its holdings, while ON Semiconductor is also its biggest loser and represents 1.88% of its holdings.

To put the performance of these semiconductor ETFs into perspective, let’s see how they compare to the Nasdaq 100 (NDX).

• SMH has soared nearly 35% year-to-date and roughly 34% over the past 12 months.
• SOXX has rallied close to 26% year-to-date and around 24% over the past 12 months.
• NDX has increased over 13% year-to-date and more than 16% over the past 12 months.

Key Drivers & News

Recent drivers for the semiconductor sector include earnings reports from major players. Nvidia’s earnings report last week was well above estimates and boosted investor morale. These results were welcomed by traders considering the fears of an AI bubble that had grown in the lead-up to its release. Nvidia also revealed plans to spend $26 billion on data centers over the next six years to rent space from them, while also being the main provider of the GPUs used in these servers.

While Nvidia has struggled with permission to sell its advanced Blackwell AI GPUs in China due to export controls, rival AMD has experienced less trouble on that front. AMD has also revealed plans to invest heavily in U.S. manufacturing to avoid supply chain constraints. There have also been ongoing talks between the U.S. and China, which could lead to fewer export limits between the two countries.

Five-star Bank of America analyst Vivek Arya recently weighed in on how the China export restrictions affect Nvidia. He said, “The daily noise around China restrictions is unhelpful but irrelevant to the near/medium financial estimates in our view.”

Valuation & Flows

Looking at the overall performance of the semiconductor sector, the price to earnings (P/E) ratio over the past 12 months comes in at an average of 58.6. To put that in perspective, the five-year average P/E ratio is 41.4.

Turning to other financial metrics, VanEck Semiconductor’s net flows were $1.19 billion month-over-month. Checking in on iShares Semiconductor, its net flows were $837.77 million during that same period.

Outlook

Looking ahead, there are several catalysts for the semiconductor sector that investors need to keep an eye on.

• Earnings Reports: Many major semiconductor companies have already released their earnings reports for Q3 2025, meaning investors are waiting for Q4 results as the next big event for the sector.
• New Product Releases: Nvidia and AMD are both developing next-generation GPUs to power AI data centers. When these updated graphics cards are released, it could result in an upgrade cycle that sees many data centers buying new hardware to meet demand.
• Hyperscaler Capital Expenditures: In that same vein, data center owners have continued to announce new projects to expand their facilities. These are being built around the world, with many set to open in the U.S.
• Trade Policy Updates: With China being a huge market for AI data centers, any new updates on trade agreements between the U.S. and the country could have a strong impact on semiconductor stocks.

Investors will also find plenty of other ETFs that track the semiconductor sector that are worth checking out, such as SPDR S&P Semiconductor ETF (XSD). Those who believe that AI is overhyped, and that it’s become a bubble that will pop, might consider an ETF that bets against the sector, like Direxion Daily Semiconductor Bear 3x Shares (SOXS).

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