The current enthusiasm for artificial intelligence, one observes, has reached a pitch bordering on the hysterical. Last year, the market positively vibrated with expectation; now, a distinctly cooler air prevails, as investors begin to discern who will profit from this technological upheaval and who will merely furnish the wreckage. A rather vulgar chart, making the rounds amongst the more excitable brokers, attempts to illustrate this point.
The implication, naturally, is that silicon will continue to be the more tangible beneficiary of this digital fever dream. Software, one suspects, is viewed as rather too easily replicated by the very machines it purports to create. A somewhat unsettling thought, but perfectly in keeping with the times.
My own preference, for what it is worth, has been the VanEck Semiconductor ETF (SMH +2.06%). A rather concentrated fund, admittedly – some twenty-five names, weighted according to market capitalization – but it delivered a perfectly respectable 49% return in 2025. And has added a further 12% to that total thus far in 2026. One might almost believe it was a sound investment.
The question, of course, is whether this momentum can be sustained. The market, as always, is remarkably adept at anticipating its own demise.
The Outlook, As Ever, Is Complicated
There is no doubt that the current AI mania will continue to stimulate demand for semiconductors. Sales are projected to reach $975 billion this year, a growth rate of 26%. A rather alarming figure, when one considers the inherent instability of these technological bubbles. Such exuberance rarely ends well.
Naturally, this rate of growth cannot continue indefinitely. But over the next year, it appears attainable. Provided, of course, that the larger technology companies continue to throw money at this problem, and that the prospect of a finished product remains perpetually on the horizon. Which, one suspects, is precisely the intention.
Nvidia’s Discomfiture: A Cautionary Tale
The principal concern, as always, is valuation. The VanEck Semiconductor ETF currently trades at 45 times trailing twelve-month earnings. Assuming that 26% growth rate, the forward price/earnings ratio falls to a more manageable 35. Though ‘manageable’ is, perhaps, too strong a word.
Any ratio significantly above the growth rate invites scrutiny, and we recently witnessed a rather instructive example with Nvidia (NVDA +1.66%). The company met, and indeed exceeded, expectations for revenue and earnings. And yet, the stock price fell by over 5% on the announcement. A clear indication, perhaps, that the market has already factored in every conceivable success. Any disappointment, however slight, will be met with a suitably savage response.
Overall, I remain cautiously optimistic about the VanEck Semiconductor ETF. One risk, however, is its rather precarious concentration. Approximately 30% of the portfolio is comprised of Nvidia and Taiwan Semiconductor. Future performance will therefore be heavily dependent on the fortunes of these two companies. A distinctly unsettling prospect, but one that appears to be tolerated, for the moment.
As long as the market continues to favour these industry giants, this ETF could well enjoy another strong year. Though one should always remember that bubbles, however cleverly constructed, have a nasty habit of bursting.
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2026-03-05 17:23