SMH ETF: Question & Answer

Semiconductors, the crucial components driving artificial intelligence (AI), electric cars, and cloud computing, are becoming increasingly valuable in this digital age. Rather than attempting to pick individual stock winners in this ever-evolving sector, the VanEck Semiconductor ETF (SMH) provides exposure to the top 25 most liquid U.S.-listed semiconductor companies, spanning the entire industry value chain from chip design and fabrication to manufacturing machinery. Additionally, the VanEck Fabless Semiconductor ETF (SMHX) offers targeted exposure to leading fabless chip designers.

• Why Invest in Semiconductors and Why Choose VanEck’s Semiconductor ETFs?
• What is the Long-Term Outlook for Semiconductors?
• Are Semiconductors Still a Cyclical Industry?
• Semiconductors and AI: How Do They Work Together?
• What Will Drive Semiconductors Over the Next Decade?
• Who are the Main Participants of the Semiconductor Industry?

Why Invest in Semiconductors and Why Choose VanEck’s Semiconductor ETFs?

Semiconductors are the foundational components powering our increasingly digital world. From cloud computing and electric vehicles to smartphones and AI, these tiny chips enable the infrastructure of modern technology. As industries digitize and artificial intelligence proliferates, demand for semiconductors continues to rise.

Investing in the VanEck Semiconductor ETF (SMH) is a way to gain exposure to this crucial sector. SMH offers broad access to the top 25 most liquid U.S.-listed semiconductor companies, spanning the entire value chain from design and fabrication to manufacturing machinery. For more targeted exposure, the VanEck Fabless Semiconductor ETF (SMHX) focuses on companies that design and develop chips but outsource the manufacturing, often resulting in higher R&D investment and operational agility.

What is the Long-term Outlook for Semiconductors?

The long-term growth outlook for semiconductors remains strong. Digital transformation across industries from automotive to industrial automation continues to expand the demand for processing, storage, and connectivity. Emerging technologies such as 5G, Internet of Things (IoT), edge computing, and AI all rely heavily on increasingly advanced and energy-efficient chips.

Graphics Processing Units (GPUs), once primarily used for gaming, are now pivotal in artificial intelligence and machine learning applications due to their high parallel processing capabilities. As AI becomes more embedded in everything from enterprise software to healthcare diagnostics, the importance of semiconductors and their diversity is only growing.

Policy support, such as the U.S. CHIPS Act and similar initiatives abroad, continues to boost domestic production and R&D, helping diversify supply chains and support long-term innovation.

Are Semiconductors Still a Cyclical Industry?

Historically, semiconductors were considered a cyclical industry, prone to dramatic booms and busts driven by PC and smartphone upgrade cycles. But that dynamic is rapidly changing.

The rise of AI data centers, enterprise cloud infrastructure, industrial automation, and automotive semiconductors has diversified the demand profile for chips. These segments are driven by sustained capital investment and long-term deployment, not short-term consumer behavior.

As a result, the industry is becoming structurally less cyclical. This evolution points to more consistent, multi-year demand growth across a broader customer base and a wider set of end markets. Investors are now viewing semiconductors as long-term infrastructure plays rather than short-term tech trades.

Semiconductors and AI: How Do They Work Together?

Artificial Intelligence (AI) and semiconductors share a symbiotic relationship. GPUs power AI workloads by executing many simultaneous computations required for training complex models. As AI continues to expand into areas like autonomous driving, robotics, and finance, the need for performance-optimized chips grows.

Simultaneously, AI is revolutionizing how chips are designed. AI-assisted design tools are enabling breakthroughs beyond traditional Moore's Law scaling, creating more application-specific architectures that maximize performance and efficiency. In short, AI depends on semiconductors to function, and semiconductors are evolving faster thanks to AI.

AI infrastructure also benefits the broader semiconductor ecosystem including memory, power management, networking, and packaging underscoring the comprehensive impact of this trend across the value chain.

What Will Drive Semiconductors Over the Next Decade?

If there's one force set to define the next decade for semiconductors, it's the relentless rise of compute demand.

Across every industry from finance and biotech to entertainment and national defense the need for faster, smarter, and more efficient computing is intensifying. The AI revolution has only accelerated this trend, creating a flywheel effect of model complexity, data growth, and infrastructure expansion.

To meet this insatiable appetite for compute, modern systems require an entire ecosystem of semiconductors working in harmony. This includes:

• High Bandwidth Memory (HBM): Feeding massive datasets into accelerators
• Networking & Interconnect Chips: Moving data swiftly between nodes in AI clusters
• Power Management & Analog ICs: Optimizing energy usage at scale
• Advanced Packaging & Back-End Equipment: Pushing physical limits for performance and density

What makes this trend so compelling is its durability. Compute demand is not tied to one product cycle or hype phase. It's a foundational requirement for digital transformation in nearly every domain. Whether training trillion-parameter AI models, simulating protein folding, or delivering real-time cloud services, the need for semiconductors is only deepening.

Investors in SMH gain access to the companies powering this megatrend—not just the designers of leading-edge chips, but also the enablers of memory, infrastructure, and fabrication. As compute becomes the oil of the 21st century, semiconductors are poised to be the picks and shovels.

Who are the Main Participants of the Semiconductor Industry?

The semiconductor industry is made up of several key players:

1. Foundry Operators (e.g., TSMC) - Manufacture chips to client specifications
2. Integrated Device Manufacturers (IDMs) (e.g., Intel) - Handle design, manufacturing, and packaging in-house
3. Fabless Companies (e.g., NVIDIA, AMD) - Focus solely on design, outsourcing fabrication
4. Equipment Manufacturers (e.g., ASML) - Supply the tools and machinery for chip production

Each of these segments contributes to the industry’s advancement and offers unique exposure within ETFs like SMH and SMHX.