Semiconductor ETFs: Why Chip Investments Could Be Your AI Play (Not Direct AI Stocks)

The Real AI Infrastructure Opportunity

The artificial intelligence revolution is reshaping investment landscapes. While most investors fixate on direct AI plays, the actual infrastructure supporting this technology boom tells a different story. The global AI market is projected to expand from $189 billion in 2023 to an astounding $4.8 trillion by 2033 — a 25-fold expansion — according to UN Conference on Trade and Development data from spring 2025.

However, identifying which AI companies will thrive remains unpredictable. Today’s sector leaders frequently become tomorrow’s underperformers. This reality has prompted sophisticated investors to explore diversified approaches rather than concentrating capital in individual tech stocks.

Why Chip Exposure Matters More Than Direct AI Bets

Semiconductors represent the true backbone of artificial intelligence infrastructure. Every data center, cloud server, smartphone, autonomous vehicle, and emerging humanoid robot depends on advanced chip technology. The semiconductor supply chain encompasses three critical layers: chip designers (like graphics processing unit manufacturers), foundries (manufacturing partners), and equipment makers (the tools that produce chips).

A diversified semiconductor fund captures this entire ecosystem rather than betting on single companies. Over the past three years, from November 2022 through November 2025, semiconductor sector performance has dramatically outpaced broader markets. The sector’s compound returns dwarf the S&P 500 across multiple timeframes.

The VanEck Semiconductor ETF Case Study

Among semiconductor-focused exchange-traded funds, the VanEck Semiconductor ETF (SMH) stands out for substantive reasons beyond flashy marketing.

Performance Metrics:

• Year-to-date return (2025): 40.1%, or 2.6 times the S&P 500’s 15.3%
• One-year return: 39.3% versus 13.8% for the broad index
• Three-year return: 210% versus 73.9% for the S&P 500
• Five-year return: 245% versus 98.6%
• Ten-year return: 1,310% versus 282%

Fund Structure & Mechanics:

Launched in late 2011, the ETF tracks the MVIS US Listed Semiconductor 25 Index, providing genuine historical perspective absent from newer competitors. The fund employs modified market-cap weighting with a 20% cap on any single position, ensuring reasonable diversification despite concentration in mega-cap players. At 0.35% annual expense ratio, costs remain competitive for thematic investing.

Total assets under management reached $34.8 billion as of late November 2025, indicating substantial institutional adoption and liquidity.

Portfolio Architecture: Where the Growth Lives

The ETF’s top 10 holdings reveal the semiconductor value chain in action:

Chip Designers: Nvidia commands an 18.50% weighting with a commanding $4.4 trillion market capitalization. Its graphics processing units dominate data center AI implementations, supported by full-stack software and high-performance networking capabilities. Over three years, Nvidia shares returned 1,010%.

Broadcom (8.44% weighting, $1.8 trillion market cap) supplies custom AI chips and Ethernet infrastructure for data centers alongside its VMware software acquisition benefits, delivering 645% three-year returns.

Advanced Micro Devices (5.86% weighting, $351 billion market cap) has grown 181% over three years through competing chip designs against Nvidia and TSMC partnerships.

Foundry Operations: Taiwan Semiconductor Manufacturing (9.69% weighting, $1.2 trillion market cap) represents the world’s largest contract chip manufacturer, producing designs for Nvidia, Qualcomm, Apple, and other major customers. TSMC appreciated 265% over three years.

Manufacturing Equipment Tier: Applied Materials (5.66% weighting), ASML (5.59% weighting), Lam Research (5.48% weighting), and KLA Corp (4.81% weighting) represent equipment producers whose tools build the chips. This group delivered 120%, 67.8%, 237%, and 203% returns respectively over three years.

Legacy Players: Intel (5.42% weighting, $170 billion market cap) showed modest 24.9% three-year performance, illustrating how even legacy semiconductor leaders underperformed during the generative AI era (measured since ChatGPT’s November 2022 launch).

Emerging Growth: Micron Technology (6.11% weighting, $251 billion market cap) advanced 286% over three years through memory chip demand.

The top 10 holdings represent 75.56% of the portfolio, providing concentrated exposure to the highest-conviction opportunities while maintaining broad sector representation.

The Diversification Advantage

Purchasing individual semiconductor stocks exposes investors to company-specific execution risks. Equipment suppliers face cyclical demand patterns. Chip designers depend on sustained customer relationships and technology transitions. Foundries navigate geopolitical complexity.

An ETF approach distributes these risks across the entire ecosystem. If one company stumbles, the portfolio captures gains elsewhere. This structural advantage becomes apparent when examining extended performance periods — semiconductor sector returns have consistently exceeded individual stock picking outcomes.

Infrastructure Investment Thesis Remains Intact

Big technology companies continue accelerating capital expenditure toward AI infrastructure buildout. Driverless vehicle legalization progresses across U.S. jurisdictions. Humanoid robotics deployment accelerates faster than prior predictions suggested. Each trend funnels demand toward advanced semiconductor capabilities.

The three-year track record commenced precisely when generative AI captured mainstream attention. Semiconductor holdings captured the full value creation arc rather than missing the initial surge. This positioning advantage persists into 2026 and beyond as infrastructure expansion continues.

Final Perspective

Semiconductor exposure through diversified ETF structures offers meaningful risk reduction compared to individual stock concentration. The VanEck Semiconductor ETF provides institutional-quality implementation through a 14-year operating history, reasonable cost structure, and proven performance across market cycles. For investors seeking direct participation in AI infrastructure gains without excessive single-company volatility, semiconductor sector funds represent a constructive positioning approach.