Semiconductor ETF's Split Personality: Record Demand Meets a Brutal Reality Check

VanEck Semiconductor ETF falls 19.7% from peak despite record chip sales, as China lithography fears trigger sell-off.

The VanEck Semiconductor UCITS ETF closed Friday at €89.23, a modest 0.92 percent gain that capped a week of violent swings. But that small bounce masks a deeper tension: the fund now sits 19.74 percent below its 52-week high of €111.18, even as the industry underneath it posts numbers that would have seemed absurd just a year ago.

Global semiconductor sales hit $120.6 billion in May, up 104.1 percent year over year and marking the 15th consecutive record month. Memory chips and AI accelerators are driving the surge, and the companies at the heart of the ETF are delivering accordingly. Micron's fiscal third quarter brought in $41.46 billion in revenue, a 345.7 percent jump from a year earlier and 17.6 percent above analyst estimates — the seventh straight quarter of earnings beats. CEO Sanjay Mehrotra called it a record quarter with an even stronger outlook ahead. Broadcom expects AI semiconductor revenue of $16.0 billion this quarter, more than triple year-ago levels, and sees the annual figure crossing $100 billion by 2027. Samsung, meanwhile, projects memory-chip shortages persisting through 2028, a dynamic that should keep pricing power intact across the supply chain.

So why the sell-off? The trigger was a report that a state-backed Chinese company has begun mass production of immersion DUV lithography machines. Investors fear new Chinese capacity could flood the global market and compress prices and margins. The market's response was swift and indiscriminate: AMD, Intel and Micron all slid in the US and Europe, while memory names Seagate, Sandisk and Western Digital were hit hardest. In Asia, SK Hynix lost 14.65 percent and Samsung Electronics gave up more than 13 percent.

Strategists are framing the pullback as a sentiment issue rather than a fundamental one. Michael Field, chief equity strategist at Morningstar, calls it a pure loss of investor confidence, noting that AI valuations demand "a great deal of trust" in cash flows that sit far in the future. Sundeep Gantori of Standard Chartered takes a similar view, arguing the market is large enough for multiple players to grow in parallel. He does expect memory prices to peak next year, but says the risk-reward profile has already improved at current valuation levels.

The index construction amplifies the swings. The underlying MVIS index tracks the 25 largest and most liquid US-listed semiconductor companies, requiring that at least half of revenue come from chips or chip equipment. The fixed 25-name selection, weighted by a modified market-cap methodology with caps, gives equipment and memory makers more heft than a pure market-cap approach would — precisely the segments that bore the brunt of the recent rout.

The fund's monthly performance tells the story of a market caught between two forces. Over the past month, the ETF is down 13.75 percent. Yet year to date it remains up 67.51 percent, a testament to how far the rally ran before the correction. The sister fund SMH in the US saw net inflows of $3.52 billion over five trading days even as its price slipped 1.46 percent — a sign that investors are buying the dip rather than heading for the exits.

The broader ecosystem offers reasons for that confidence. Taiwan's economy grew 14 percent in the first half, the fastest pace since 1976, driven by broadening AI-chip demand. TSMC has announced price increases of 5 to 10 percent starting in 2027 and is investing $100 billion in its Arizona facility. Nvidia continues to exercise pricing power despite US export restrictions on China, and its quarterly report on August 26 looms as the next major catalyst — a decisive moment given the company's weight in the index. Teradyne also posted stronger second-quarter revenue and profits on AI-related test equipment.

Not everyone is convinced the good times roll on uninterrupted. HSBC puts a 37 percent probability on overinvestment by cloud giants becoming the dominant market narrative, though the bank still expects annualized outperformance of 11.8 percent for semiconductor stocks — at the expense of the companies footing the bill for those massive capital expenditures. Goldman Sachs, for its part, sees only a limited threat from Chinese chipmakers to the established names in the ETF's portfolio.

Technically, the fund sits in neutral territory with an RSI of 43.5, having unwound from overbought conditions after months of steep gains. The distance to the 50-day average of €98.00 stands at minus 8.94 percent, suggesting the short-term trend has yet to stabilize. The volatility has been extraordinary — South Korea's Kospi swung from one of its worst crashes to its best single-day gain in history within days, with SK Hynix and Samsung posting double-digit daily moves in both directions.

The setup for the coming weeks is genuinely two-sided. Fifteen straight record months of chip sales and blowout earnings argue for the bulls. The prospect of Chinese lithography advances reshaping global supply argues for caution. The next round of earnings from the major chipmakers — starting with Nvidia — will determine which side wins the argument.