Why Semiconductor Investors Are Rotating From SMH’s Nvidia Concentration to PSI’s Equal-Weight Approach

Quick Read

• PSI’s equal-weight design limits Nvidia to under 4% of assets and outpaced Nvidia-heavy SMH by over 20 percentage points last year.

• SOXX caps each holding at roughly 8%, returned 110% over the same period, and charges the lowest fee of the three at 0.33%.

• Splitting an allocation between SMH and PSI captures both the Nvidia megacap engine and broader sector breadth at a blended fee under 0.45%.

• Read More: Learn 7 secret wealth tips high net worth investors use that most investors miss (sponsor)

If you own the VanEck Semiconductor ETF (NASDAQ:SMH), you own the default way to bet on chips. The fund is the largest and most liquid semiconductor ETF on the market, sitting at roughly $71.1 billion in assets with a slim 0.35% expense ratio, and it delivers exactly what most investors want: concentrated exposure to the names driving the AI buildout. That is also SMH’s problem. NVIDIA (NASDAQ:NVDA) now accounts for 21.7% of the portfolio, and over the past year an equal-weight-leaning competitor has quietly outrun it by more than 20 percentage points.

Why SMH’s Design Became a Headwind

SMH holds only about 25 stocks and weights them by modified market cap, which pushes megacap winners to the top and keeps them there. Beyond Nvidia, the fund’s next tier includes Taiwan Semiconductor at 9.29%, Applied Materials at 5.74%, AMD at 5.63%, and Micron at…