ETF Spotlight: SMH Rides Nvidia, Trade War Roller Coaster

The VanEck Semiconductor ETF (SMH) has staged an impressive comeback since the easing of U.S.-China trade tensions earlier this year, cementing its position as one of 2025’s standout performers.

Following a steep decline during the peak of trade war fears in March and early April, SMH has surged as confidence returned to the semiconductor space—culminating in much-anticipated earnings call from Nvidia Corp. (NVDA) this week.  

While SMH fell about 32% from its 2025 high in January to its April low, the semiconductor ETF has rocketed back 35% from that trough.

While the ETF’s post-earnings gain on Thursday was modest, reflecting investor uncertainty about the sustainability of sector momentum, the broader rally highlights the rewards available to investors willing to buy during moments of maximum fear.  

However, as trade policy risk remains unresolved and questions swirl around whether chip stocks can keep outpacing expectations, investors are right to wonder whether SMH can keep leading the market in the second half of 2025.

SMH, The AI Boom and Semiconductor Dominance

Semiconductors have become the beating heart of the tech economy—and investors have taken notice. The SMH ETF, which holds a concentrated portfolio of top chipmakers like Nvidia, Advanced Micro Devices Inc. (AMD) and Taiwan Semiconductor, has ridden the wave of explosive growth in artificial intelligence.  

Since 2020, the sector has benefited from unprecedented demand for chips powering data centers, generative AI models, autonomous driving systems and high-performance computing. This secular growth story has made semiconductor ETFs some of the strongest performers in the market over the past decade.

But with that outperformance comes heightened scrutiny. As Nvidia continues to post massive quarterly results, including this week's impressive—but widely expected—earnings, some investors are growing cautious.  

Valuations are elevated, expectations are sky-high and if macro risks—such as renewed trade tensions or weakening global demand—resurface, semiconductor stocks could see another bout of volatility. While long-term fundamentals remain strong, the near-term picture is less clear.

SMH: Buy the Dip and Sell the Rip?

Despite the compelling long-term case for semiconductors, investors in SMH and similar ETFs must be prepared for continued short-term turbulence. Trade policy remains a wildcard, and the high sensitivity of semiconductor stocks to global economic conditions makes them vulnerable during periods of uncertainty. Moreover, any signs of earnings disappointments—either from slowing demand or supply chain disruptions—could trigger sharp corrections in the sector.

For long-term investors, this volatility presents opportunity as well as risk. Strategies like rebalancing and dollar-cost averaging can help smooth out the ride, ensuring investors are steadily increasing exposure when prices dip and trimming when markets overheat. For more active traders, SMH remains a favored vehicle for tactical plays—“buying the dip” during pullbacks and “selling the rip” after sharp rallies.

In summary, SMH embodies the dynamic nature of the semiconductor space: high growth, high volatility and high investor interest. The ETF’s strong performance in 2025 has rewarded those who held steady through the storm. But with macroeconomic uncertainty still looming and lofty expectations priced in, a disciplined investment approach is key to benefiting from semiconductors' long-term potential—without getting caught in the whipsaw of short-term market swings.