A dramatic compression in earnings multiples has quietly transformed one of tech’s most-watched chip funds from a crowded trade into a potentially reasonable long-term bet.
The VanEck Semiconductor ETF (NASDAQ: SMH) now trades near $502, roughly 25% below its all-time closing record of $668.91, reached on June 22.
That peak-to-trough decline, painful as it looks on a chart, has done something analytically significant: it reset the fund’s valuation from stretched to ordinary.
At the end of June, just days after SMH hit its record, the weighted price-to-earnings ratio of the fund’s underlying holdings stood at approximately 49 times earnings, a level that left little room for error.
By the October reading, after the fund had shed roughly 20% of its value, that same valuation metric had compressed to around 28 times earnings.
That figure puts SMH broadly in line with the S&P 500’s baseline valuation, a striking shift for a sector that investors had long paid a steep premium to access.
The repricing arrives at a moment when the semiconductor industry’s underlying business is accelerating rather than slowing, adding weight to the bullish long-term case.
Global chip sales surged 24.1% in the third quarter compared to the second, according to data from the Semiconductor Industry Association, signaling robust demand across the supply chain.
SMH’s two largest positions, Nvidia and Taiwan Semiconductor Manufacturing, together account for more than a quarter of the fund’s total weight, concentrating exposure in the companies most central to the current AI-driven hardware cycle.
For investors willing to look past near-term volatility, the argument is straightforward: the fund’s price has fallen hard while its business fundamentals have strengthened, creating a gap that time may close.
The case for buying at current levels does not depend on the semiconductor industry sustaining its recent torrid growth rate, which makes the thesis more durable than it might first appear.
A buy-and-hold approach through 2030 gives the position enough runway to absorb further turbulence while capturing what could be a multi-year expansion in chip demand driven by artificial intelligence, data centers, and automotive electronics.
The convergence of a compressed multiple, strong industry sales data, and a four-year time horizon forms the core of the argument for accumulating SMH at prices near $502.
