SMH vs. SOXX: Which Semiconductor ETF Is Better?

The real signal here is not “semis are strong,” but that the leadership is broadening from the most obvious AI beneficiaries into the second tier of the supply chain. That usually happens when buyers move from narrative accumulation to earnings validation: memory, networking, and fabless mid-caps start to rerate as inventories normalize and capex budgets remain elevated. If that broadening persists, a concentrated megacap basket can underperform even while the sector itself keeps rising.

The key second-order effect is relative-weight drift. A fund that is more exposed to the names catching up on fundamentals will outperform in a market where earnings revisions are still expanding outside the top two or three AI platforms. Conversely, a mega-cap-heavy basket becomes a hidden duration trade on continued multiple expansion in NVDA/TSM; if those names merely consolidate while MU/AMD/MRVL keep compounding, the performance gap can widen quickly over the next 3-6 months.

The contrarian risk is that this is being framed as diversification when it is really just a different factor load. SOXX has more mid-cap beta and a bit less single-name concentration, which helps if breadth continues, but it will also lag harder if the market snaps back to quality and liquidity prefers the largest balance sheets. Another risk is that the “catch-up” trade is crowded; once consensus shifts to broad semis, the upside may compress into short bursts around earnings beats rather than a durable trend.

For the next leg, the more important variable is not sector direction but dispersion. If memory pricing, custom silicon demand, and networking spend all remain supportive into the next 1-2 quarters, the winners should be the names with the strongest operating leverage and the lowest current ownership relative to earnings power. That argues for owning the basket with more mid-cap exposure rather than paying up for the cleanest megacap proxy.