VanEck's SMH ETF crushes tech rivals with 30% annualized AI-driven gains

The VanEck Semiconductor ETF (SMH) has become a standout performer in the tech sector. Over the past five years, it has delivered far stronger returns than broader technology funds and the S&P 500 tech index. Analysts now expect this trend to continue in the near term, driven by ongoing demand for semiconductors.

Between March 2021 and March 2026, SMH achieved annualised returns of roughly 28–32%. This easily outpaced broad tech ETFs like QQQ, which saw gains of 20–25%, and the S&P 500 tech sector, which returned 18–22%. The fund's success stems largely from the AI infrastructure boom, which has fuelled demand for advanced chips. However, its performance has come with higher volatility, with a standard deviation of around 25–30%, compared to 18–22% for QQQ and 15–20% for the S&P tech sector.

The semiconductor industry's growth cycle shows no signs of slowing. Tech earnings are forecast to expand faster than any other S&P 500 sector in 2026 and 2027. Despite a trailing 12-month price-to-earnings ratio of 43, SMH's forward P/E drops to 23, suggesting expectations of strong future earnings. The AI-driven surge in chip demand remains in its early phases. While SMH faced sharper declines during the 2022 market correction, its long-term trajectory has stayed positive.

SMH's strong historical performance and forward-looking valuations point to continued growth potential. The semiconductor sector's expansion, backed by AI and tech earnings, supports its position as a high-reward investment. Yet investors must still account for its higher volatility compared to broader tech funds.