AI-Driven Semiconductor Growth
March 04, 2025
Read Time 3 MIN
In our latest semiconductor outlook discussion, we broke down the latest shifts in AI-driven semiconductor demand, Nvidia’s evolving role, and what these trends mean for investors. Here are our top three takeaways:
- AI model development is moving faster than expected: AI model specialization and monetization are accelerating, reshaping semiconductor demand.
- Hyperscalers are restructuring AI infrastructure: Major players like AWS, Meta, and Microsoft are rapidly optimizing their AI compute strategies, influencing semiconductor investment and CAPEX allocation.
- The semiconductor opportunity continues to broaden: Nvidia remains dominant, but the evolving AI landscape is creating new demand across GPUs, ASICs, and custom silicon, benefiting a wider range of semiconductor players.
1. AI Models Are Scaling and Optimizing at the Same Time
The conversation started with the recent AI breakthroughs from DeepSeek and X AI/Grok. Initially, DeepSeek’s efficiency gains sparked concerns that AI compute scaling might slow. However, Nvidia’s latest results reaffirm that scaling laws are still intact, particularly for US-based operators. The key takeaway? AI still requires significant semiconductor hardware, whether through scaling (GPUs) or optimization (custom silicon and ASICs).
2. Hyperscalers Are Monetizing AI Faster Than Expected
AI monetization has moved beyond expectations, with Meta exceeding forecasts and OpenAI, Microsoft, and AWS carving out distinct AI business models. Rather than competing for the same customers, each is building its own lane, reinforcing demand for different semiconductor solutions. Faster monetization likely translates to higher overall CAPEX spending, benefiting the semiconductor supply chain.
3. Reevaluating Nvidia’s Position in a Broader Semi Landscape
Nvidia remains the dominant AI chip provider, but the discussion highlighted how AI infrastructure is being unbundled. Hyperscalers are ramping up custom silicon efforts (Amazon’s Tranium, Google’s TPU, Meta’s in-house chips), and market share definitions are shifting as AI compute needs fragment. While Nvidia remains a major player, the broader semiconductor ecosystem is expanding, creating more opportunities across different chip architectures. The VanEck Semiconductor ETF (SMH) and the VanEck Fabless Semiconductor ETF (SMHX) both offer a diversified ETF approach to capture opportunities across the entire industry.
4. Case Study: ARM and the Acceleration of AI at the Edge
One of the biggest surprises of the quarter was how quickly AI is being integrated into mobile devices. ARM’s licensing revenue has surged as companies like Apple, Qualcomm, and MediaTek adopt its ARMv9 architecture to power AI workloads at the edge. This rapid adoption suggests AI compute is moving beyond just data centers, creating a new growth driver for semiconductors outside traditional GPU markets.
5. The Geopolitical Factor: Intel, TSMC, and US-China Dynamics
The discussion also touched on Intel’s struggles, TSMC’s strategic position, and the long-term implications of US semiconductor policy. With China accelerating its domestic semiconductor efforts and the US relying heavily on Taiwan-based manufacturing, the semiconductor supply chain remains a key area of geopolitical focus.
Final Thoughts from the Past Quarter
The pace of AI innovation continues to exceed expectations, reinforcing demand across various segments of the semiconductor industry. While Nvidia remains a leader, the broader opportunity in AI-driven semiconductors is expanding beyond just GPUs, creating new investment considerations.
As always, our focus remains on mapping these industry shifts as they happen—understanding not just where the market is today but how it is reflexively evolving.
Stay tuned for our next update as we continue to track these developments.
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Disclosures
Holdings will vary for the VanEck Semiconductor ETF and its corresponding Index. For a complete list of holdings in the ETF, please click here: SMH - VanEck Semiconductor ETF - Holdings.
Holdings will vary for the VanEck Fabless Semiconductor ETF and its corresponding Index. For a complete list of holdings in the ETF, please click here: SMHX - VanEck Fabless Semiconductor ETF - Holdings.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.
“CapEx” – capital expenditure or capital expense, is the money an organization or corporate entity spends to buy, maintain, or improve its fixed assets, such as buildings, vehicles, equipment, or land. Prior to using any AI tools, please consult your compliance and legal departments to assess and mitigate potential risks associated with its application in your specific regulatory environment.
Please note that any content generated by an Artificial Intelligence (AI) system has not been subject to a human review, and thus no assurance can be made as to its accuracy. Please exercise caution when using AI systems and verify the content produced through such systems wherever possible.
An investment in the VanEck Semiconductor ETF (SMH) and VanEck Fabless Semiconductor ETF (SMHX) may be subject to risks which include, among others, risks related to investing in the semiconductor industry, special risk considerations of investing in Taiwanese issuers, equity securities, small-, medium and large capitalization companies, foreign securities, emerging market issuers, foreign currency, depositary receipts, issuer-specific changes, market, operational, index tracking, authorized participant concentration, new fund, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/ discount and liquidity of fund shares, non-diversified, and index-related concentration risks, all of which may adversely affect the Fund. Small, medium and large capitalization companies may be subject to elevated risks. Emerging market issuers and foreign securities may be subject to securities markets, political and economic, investment and repatriation restrictions, different rules and regulations, less publicly available financial information, foreign currency and exchange rates, operational and settlement, and corporate and securities laws risks.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
© Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation.
Related Funds
Disclosures
Holdings will vary for the VanEck Semiconductor ETF and its corresponding Index. For a complete list of holdings in the ETF, please click here: SMH - VanEck Semiconductor ETF - Holdings.
Holdings will vary for the VanEck Fabless Semiconductor ETF and its corresponding Index. For a complete list of holdings in the ETF, please click here: SMHX - VanEck Fabless Semiconductor ETF - Holdings.
This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.
“CapEx” – capital expenditure or capital expense, is the money an organization or corporate entity spends to buy, maintain, or improve its fixed assets, such as buildings, vehicles, equipment, or land. Prior to using any AI tools, please consult your compliance and legal departments to assess and mitigate potential risks associated with its application in your specific regulatory environment.
Please note that any content generated by an Artificial Intelligence (AI) system has not been subject to a human review, and thus no assurance can be made as to its accuracy. Please exercise caution when using AI systems and verify the content produced through such systems wherever possible.
An investment in the VanEck Semiconductor ETF (SMH) and VanEck Fabless Semiconductor ETF (SMHX) may be subject to risks which include, among others, risks related to investing in the semiconductor industry, special risk considerations of investing in Taiwanese issuers, equity securities, small-, medium and large capitalization companies, foreign securities, emerging market issuers, foreign currency, depositary receipts, issuer-specific changes, market, operational, index tracking, authorized participant concentration, new fund, no guarantee of active trading market, trading issues, passive management, fund shares trading, premium/ discount and liquidity of fund shares, non-diversified, and index-related concentration risks, all of which may adversely affect the Fund. Small, medium and large capitalization companies may be subject to elevated risks. Emerging market issuers and foreign securities may be subject to securities markets, political and economic, investment and repatriation restrictions, different rules and regulations, less publicly available financial information, foreign currency and exchange rates, operational and settlement, and corporate and securities laws risks.
Investing involves substantial risk and high volatility, including possible loss of principal. An investor should consider the investment objective, risks, charges and expenses of the Fund carefully before investing. To obtain a prospectus and summary prospectus, which contains this and other information, call 800.826.2333 or visit vaneck.com. Please read the prospectus and summary prospectus carefully before investing.
© Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation.