Semiconductor ETF Caught in a Battle Between AI Euphoria and China Anxiety

VanEck Semiconductor ETF drops 20% from peak amid China lithography fears, but analysts see sentiment-driven selloff with intact long-term growth.

The VanEck Semiconductor UCITS ETF has become the clearest barometer of a sector swinging violently between two competing narratives: the relentless build-out of AI infrastructure and the nagging fear that China is closing the technology gap faster than anyone anticipated.

At its most recent close, the fund stood at 88.55 euro, having shed roughly a fifth of its value since hitting an all-time high of 111.18 euro in late June. The weekly decline came to 5.18 percent, while the monthly damage stretched to 14.41 percent. Yet those sobering figures sit alongside a twelve-month gain of 110.71 percent and a year-to-date advance of 66.23 percent — numbers that underscore just how much momentum the AI rally had built up before the current turbulence set in.

A Single Report Shakes the Equipment Trade

The latest leg of the selloff traces back to reports that a Chinese manufacturer has developed its own immersion lithography machine — a piece of technology long considered the exclusive domain of Dutch giant ASML. The news hit the sector like a shockwave, sending ASML shares down more than 8 percent and wiping out roughly 110 billion dollar in market value from AMD and 119 billion dollar from Taiwan Semiconductor Manufacturing. The Nasdaq 100 slipped 1.8 percent, edging toward correction territory.

The episode crystallized a question that has been haunting the semiconductor trade: are China's advances in chip manufacturing a genuine structural threat to Western technological supremacy, or simply a sentiment shock within a fundamentally intact growth story?

Analysts Lean Toward the Latter

Market observers who have weighed in on the rout largely characterize it as a crisis of confidence rather than a breakdown in fundamentals. Michael Field, chief equity strategist at Morningstar, described the decline as "mostly sentiment-driven, not fundamentals-driven," pointing to a "loss of confidence" among investors while noting that many AI names remain growth stocks whose valuations hinge on future cash flows.

Sundeep Gantori, chief investment officer for equities at Standard Chartered, traces the selloff to media coverage of China's ambitions in memory chips and lithography equipment. The long-term outlook remains intact, he argues, adding that with memory-chip prices projected to peak in 2027, the risk-reward profile has actually improved after the pullback.

Kieron Poon, investment director for Asian equities at Aberdeen Investments, frames the weakness as a byproduct of ongoing deleveraging in South Korea and a broader cooling of sentiment toward global technology stocks — neither of which has altered his long-term positive stance. Charlie Dai of Forrester adds a further wrinkle: investors are increasingly questioning whether near-term revenues can justify the unprecedented spending on AI infrastructure, even as competition in chips and AI systems intensifies.

The Concentration Factor

The VanEck ETF's pronounced reactions to these swings are no accident. Its portfolio is heavily concentrated, with Nvidia alone accounting for 20.8 percent of assets. Taiwan Semiconductor Manufacturing follows at 9.6 percent, Broadcom at 6.6 percent and AMD at 5.7 percent, according to VettaFi data. The top ten holdings together represent roughly 72 percent of the fund — a structure that amplifies moves in both directions.

That concentration cut both ways during the recent turbulence. It deepened losses when sentiment soured early in the week, but it also supercharged the rebound once the mood shifted. The PHLX Semiconductor Index surged 8.2 percent on Thursday, snapping a five-day losing streak, with Applied Materials jumping 15 percent and Micron Technology climbing 18.4 percent.

What Turned the Tide

The catalyst for the recovery came not from the chip sector itself but from the cloud divisions of America's tech giants. Microsoft rallied 16 percent on Thursday after reporting stronger-than-expected growth in its Azure business, and Amazon gained 11 percent on Friday following a cloud revenue beat. Both reports pointed to massive ongoing investment in AI infrastructure, reigniting demand for semiconductor stocks and funds alike. According to FactSet data, semiconductor ETFs ranked among the funds with the largest net inflows of the week.

The earlier selloff had been fueled by fears that AI infrastructure spending might peak sooner than expected — a concern that, per a CNBC analysis of FactSet data, erased 1.3 trillion dollar in market value from the world's 20 most valuable chip stocks in a single week. Markets had also briefly priced in the possibility that the Federal Reserve might fall behind in its inflation fight; the central bank ultimately left rates unchanged, easing that pressure.

A Volatile Profile, an Intact Long-Term Story

The fund's annualized 30-day volatility stands at 60.84 percent, with a relative strength index of 42.7 — a reading that suggests neither extreme oversold conditions nor imminent calm. The comparison with leveraged products illustrates why investors tolerate the concentration: the triple-leveraged SOXL has lost roughly 15.5 percent so far this year, while SMH and the more diversified SOXX are each down only about 4 percent. The focus on a handful of large chip designers and equipment makers has cushioned losses over the course of the year without sacrificing the bulk of the AI-driven gains.

The fund's twelve-month performance of 110.71 percent — or 112.33 percent depending on the measurement window — leaves it roughly 20 percent below its June peak. Whether that gap narrows or widens in the coming weeks likely depends on which of the two prevailing narratives gains the upper hand: the durability of the AI capex cycle or the pace of China's technological ascent.