The VanEck Semiconductor ETF (SMH) pulled in $6.93 billion in net inflows on Monday, representing nearly a third of the record $21.46 billion that flowed into U.S. technology sector funds for the week ending June 17. This single-day surge, equivalent to 8.78% of SMH's assets, underscores a notable rotation within the AI trade as investors diversify beyond Nvidia.
Market Context and Investor Shift
The inflows come as semiconductor stocks climbed on Monday while megacap tech names dragged the Nasdaq lower. This divergence highlights a growing preference for chip suppliers over the large tech companies that are major buyers of AI hardware. According to LSEG Lipper data, U.S. equity funds attracted $38.37 billion for the week, the largest since November 2024, with technology sector funds hitting a record.
David Wagner at Aptus Capital Advisors noted that investors are increasingly distinguishing between companies "receiving the checks" and those "writing the checks" in the AI ecosystem. Alphabet slid 6.1% on Monday, while Micron and Sandisk traded higher, and the Philadelphia semiconductor index added 1% to reach a record.
ETF Mechanics and Impact
The creation of new SMH shares through authorized participants involves handing over cash or a basket of stocks, which can drain liquidity from underlying stocks and move it into the ETF. A $6.93 billion creation basket matching SMH's weights would hold approximately $1.27 billion of Nvidia, $620 million of Taiwan Semiconductor, and nearly $400 million each in Broadcom and Micron. This explains why the flow matters beyond headline investor appetite.
Meanwhile, leveraged Nvidia-focused ETFs saw outflows: GraniteShares 2x Long NVDA Daily ETF lost $824 million, and Direxion Daily Semiconductor Bull 3x Shares dropped $270 million. This suggests investors are rotating out of leveraged single-stock bets into unlevered, diversified chip exposure.
Memory Chips Gain Prominence
Memory chips have become increasingly important in the AI trade. Reuters reported that SK Hynix has surpassed Samsung Electronics as the most valuable company on South Korea's stock market, driven by demand for high-bandwidth memory (HBM) used in AI gear. "Customised AI memory has changed the industry's economics," said Kim Sunwoo, a senior analyst at Meritz Securities.
SMH covers the wider semiconductor supply chain, with holdings including chip designers, foundries, memory, and equipment firms. As of June 18, its top holdings were Nvidia at 18.34%, Taiwan Semiconductor at 8.94%, Broadcom at 5.71%, Micron at 5.55%, and AMD at 5.18%.
Competition and Risks
SMH faces competition from iShares Semiconductor ETF (SOXX) and Invesco PHLX Semiconductor ETF (SOXQ), which lean more on smaller chip firms. However, the risk is that if Micron's earnings disappoint or inflation data hardens Fed tightening bets, the creation trade could reverse into redemptions, potentially dragging down chip names.
The surprise driver of this move is not solely Nvidia or HBM but the surge in ETF demand against a tight portfolio, as buyers favor suppliers over customers. This makes the one-day SMH flow a telling indicator for the AI trade.
