Why SMH ETF Deserves a Spot in Your Portfolio
SMH ETF, or VanEck Semiconductor ETF, has been one of the best-performing ETFs over the last decade, capitalizing on the rapid growth of the semiconductor industry. The sector is the backbone of modern technology, powering everything from artificial intelligence and cloud computing to consumer electronics and autonomous vehicles.
Since 2015, SMH has delivered an impressive 26.30% average annual return, significantly outperforming major benchmarks like SPY at 13.61% and QQQ at 17.63% during the same period.
SMH ETF vs. SPY and QQQ: AUM and Recent Performance
Despite its strong historical performance, SMH has a relatively low AUM of $21 billion. In contrast, SPY boasts nearly $1 trillion in assets, while QQQ holds $320 billion.
However, over the last 12 months, SMH has underperformed compared to its peers:
- SMH: +5.55%
- QQQ: +14.04%
- SPY: +15.86%
Could this be an opportunity to rotate out of SPY and into SMH?
We believe it is—and here’s why.
Breaking Down the SMH ETF: Composition and Key Metrics
| Weight in ETF | 2025 Forward PE | 3-5 Yr Earnings Growth | Forward PEG Ratio | Forward PEG Weight in SMH | ||
| 1 | NVDA | 18.50% | 27.82 | 29.15 | 0.95 | 0.18 |
| 2 | TSM | 12.11% | 19.86 | 22.57 | 0.88 | 0.11 |
| 3 | AVGO | 9.12% | 31.41 | 22.89 | 1.37 | 0.13 |
| 4 | ASML | 5.24% | 28.41 | 20.68 | 1.37 | 0.07 |
| 5 | TXN | 4.82% | 34.82 | 16.07 | 2.17 | 0.10 |
| 6 | QCOM | 4.66% | 13.39 | 7.02 | 1.91 | 0.09 |
| 7 | ADI | 4.48% | 32.04 | 17.11 | 1.87 | 0.08 |
| 8 | AMAT | 4.42% | 16.87 | 8.02 | 2.10 | 0.09 |
| 9 | INTC | 4.27% | 48.81 | 41.00 | 1.19 | 0.05 |
| 10 | MU | 4.16% | 13.58 | 106.00 | 0.13 | 0.01 |
| 11 | LRCX | 4.16% | 20.49 | 15.63 | 1.31 | 0.05 |
| 12 | AMD | 4.10% | 21.19 | 33.15 | 0.64 | 0.03 |
| 13 | KLAC | 3.97% | 22.53 | 16.66 | 1.35 | 0.05 |
| 14 | SNPS | 3.00% | 30.65 | 14.73 | 2.08 | 0.06 |
| 15 | CDNS | 2.85% | 37.19 | 13.49 | 2.76 | 0.08 |
| 16 | MRVL | 2.74% | 32.95 | 34.58 | 0.95 | 0.03 |
| 17 | NXPI | 1.85% | 18.17 | 8.44 | 2.15 | 0.04 |
| 18 | MCHP | 1.27% | 45.2 | -20.00 | -2.26 | -0.03 |
| 19 | MPWR | 1.10% | 36.44 | 18.48 | 1.97 | 0.02 |
| 20 | STM | 0.83% | 29.66 | 12.88 | 2.30 | 0.02 |
| 21 | ON | 0.67% | 18.52 | 10.30 | 1.80 | 0.01 |
| 22 | TER | 0.65% | 27.95 | 24.25 | 1.15 | 0.01 |
| 23 | SWKS | 0.42% | 13.94 | -4.60 | -3.03 | -0.01 |
| 24 | OLED | 0.30% | 31.36 | 16.54 | 1.90 | 0.01 |
| 25 | QRVO | 0.27% | 13.00 | 2.89 | 4.50 | 0.01 |
Where the Data Comes From
The data for SMH ETF is sourced from multiple platforms:
- Component weights: Retrieved from the issuer’s website, VanEck.
- 2025 Forward P/E ratios: Sourced from Seeking Alpha.
- 3–5 year earnings growth rates: Taken from Finviz.
Adjusting for Outliers: Calculating an Accurate Forward PEG
There are two components with negative earnings growth expectations—MCHP and SWKS. We think it’s proper to remove them from our calculations as they reduce Forward PEG, and their respective weights are very small. We also want to remove MU—its forward earnings estimates are just way too high. Adjusted for that, the 2025 Forward PEG ratio for SMH is 1.32.
How does this forward PEG ratio compare to other ETFs? According to State Street Global Advisors, SPY has a forward PEG ratio of 1.83, a forward PE of 21.93, and a 3-5 year earnings growth rate of 11.90%.
XLK ETF, S&P 500 Technology index has a forward PEG ratio of 1.67, forward PE ratio of 26.66, and 3-5 year earnings growth rate of 15.90%. Last check, we will look at XSD ETF – S&P500 Semiconductor ETF.
The important thing to know about that ETF is that its composition is vastly different from that of SMH – it is mostly equal weight of its components, and as such, NVDA will be of similar weight to other components, around 4%. Nevertheless, we think the comparison is relevant. XSD has a forward PE ratio of 25.96 and a 3-5 year earnings growth rate of 18.52%, making its forward PEG ratio 1.4.
Valuation of SMH’s Largest Components
To further assess the ETF, we analyzed the four largest holdings—Nvidia (NVDA), Taiwan Semiconductor (TSM), Broadcom (AVGO), and ASML (not shown here).
- Most analysts rate these stocks as “BUY.”
- Price Targets suggest at least a 30% upside.
- NVDA, which comprises nearly 20% of SMH, trades at a 50% discount to its consensus Price Target
The Bottom Line
Semiconductors play a key role in technology, from AI to data centers. SMH ETF focuses on major industry leaders, while XSD offers a more balanced mix. For European investors, CHIP ETF (Amundi MSCI Semiconductor ETF) has a similar structure to SMH.
After a period of underperformance, semiconductor ETFs could be worth watching as the sector continues to grow and evolve.