Wednesday's premarket trading saw the VanEck Semiconductor ETF (SMH) regain momentum as major chipmakers advanced, propelled by Advanced Micro Devices' optimistic outlook and renewed enthusiasm for artificial intelligence hardware. SMH climbed to $522.69, a gain of $16.25 from Tuesday's close, with AMD shares surging nearly 18% before the bell. Other semiconductor stocks, including Intel, Arm, Qualcomm, and Micron, also moved higher.
The broadening of the AI trade beyond Nvidia's specialized GPUs is a key development. AMD's latest update highlighted growing demand for CPUs, the general-purpose processors essential for everyday computing, as AI focus shifts toward inference—the deployment of trained models in real-world applications. This shift suggests a more diversified demand base for chipmakers.
AMD reported first-quarter revenue of $10.3 billion, a 38% year-over-year increase, driven by a 57% surge in data-center sales to $5.8 billion, fueled by EPYC processor demand and Instinct GPU shipments. For the second quarter, the company guided revenue of $11.2 billion, plus or minus $300 million. CEO Lisa Su cited "accelerating demand for AI infrastructure," noting that data centers have become the company's primary growth engine.
SMH has had a strong run, jumping 32.2% in April at net asset value, bringing its year-to-date return through April 30 to 40.69%. As of May 5, the fund's top holdings included Nvidia at 16.22%, Taiwan Semiconductor Manufacturing at 10.12%, Broadcom at 7.88%, Intel at 7.79%, AMD at 5.99%, and Micron at 5.87%. The ETF offers a concentrated bet on the AI chip supply chain, encompassing designers, foundries, memory producers, and equipment suppliers.
Taiwan Semiconductor, the second-largest holding in SMH, reported first-quarter revenue of $35.90 billion, up 40.6% year over year, with net income and diluted EPS both rising 58.3%. CFO Wendell Huang attributed the results to "continued strong demand" for advanced chipmaking technology.
Analysts view AMD's results as a sign that chip demand may be spreading beyond a single segment. Matt Britzman, senior equity analyst at Hargreaves Lansdown, described it as "a broader compute opportunity," noting the ramp-up in AI workloads.
However, the ETF's market-cap-weighted structure has shifted it from a broad industry play to a more concentrated bet on a few large names, according to Tony Dong, lead ETF analyst at ETF Central. He suggested the SPDR S&P Semiconductor ETF (XSD) as an alternative, which equally weights 44 semiconductor stocks and carries the same 0.35% expense ratio, though its 10-year annualized returns have lagged behind SMH.
The rebound faces headwinds if demand falters, memory prices rise, or a top holding underperforms. AMD has warned of a potential drop in PC shipments later this year due to higher memory and component costs, and it expects gaming revenue to decline over 20% in the second half compared to the first.
Valuation is also a concern. AMD shares trade at a steep 39.66 times forward earnings, nearly double Nvidia's 21-times multiple, despite Nvidia's dominant AI market share. While AMD's forecast has reinforced confidence in ongoing AI infrastructure spending, SMH investors should be aware that the ETF is not without risks.
