VanEck Semiconductor ETF nears all-time highs

Key Points

• The Semiconductor Sector, represented by SMH, is on the brink of all-time highs after a recent breakout.
• SMH's impressive 55% year-to-date growth can be attributed to the AI boom and increased chip demand.
• NVIDIA  constituting nearly 20% of SMH, is set to report earnings soon, posing a significant catalyst for the sector.

The overall market continued to surge higher this week, posting impressive gains for the past two weeks back-to-back. This surge higher has been led by the technology sector, with the Technology Sector ETF NYSE: XLK closing the week up an impressive 4.93%.

However, one sector stands out after recently breaking out of its consolidation after trading near support just two weeks ago. The semiconductor sector, VanEck Semiconductor ETF NASDAQ: SMH, closed the week up 5.20% and is fast approaching critical resistance and new all-time highs around $161.

The semiconductor ETF is now up a staggering 55% year-to-date, largely thanks to the impact of artificial intelligence (AI) and the boom in chip demand. With the ETF fresh from breaking out and now nearing a critical level, let’s take a closer look at the chart and a key player within the ETF’s holdings. 

SMH breaks out and nears all-time highs

The VanEck Semiconductor ETF (SMH), with assets of $10.37 billion under management, is an exchange-traded fund that is based on the MVIS US Listed Semiconductor 25 index, a market-cap-weighted index of 25 of the largest US-listed semiconductors companies. The ETF has a dividend yield of 0.76% and a net expense ratio of 0.35%.

The ETF continued its surge higher last week after breaking above the short-term resistance near $150, confirming a breakout. Before that, the stock traded to support the consolidation, near $140 and successfully found buyers near the 200-day SMA before turning higher and basing above the 50-day SMA. 

With the ETF now firmly trading above resistance, its sights appear set on the all-time high of $161.17, just over an entire Average True Range (ATR) away. However, an upcoming catalyst for the whole sector might dictate whether or not that is possible.

Nearly 30% of the ETF's portfolio is concentrated in its top two holdings. Thus, it is imperative to conduct a comprehensive analysis not only of the SMH and its chart but also to delve into a thorough understanding of the ETF's leading investments. 

Given the substantial exposure to just two stocks, the ETF becomes exceptionally responsive to any significant fluctuations within its primary holdings.

30% of SMH is concentrated in these two stocks

NVIDIA NASDAQ: NVDA and Taiwan Semiconductor Manufacturing NYSE: TSM account for almost 30% of the ETF’s holdings, with NVDA accounting for nearly 20% and TSM 10.54%. 

NVDA, a Top-Rated Stock and one of the most Most-Upgraded Stocks, has arguably been the hottest-performing large-cap, blue-chip stock of the year and certainly the most popular, thanks to its remarkable growth. Year-to-date, the stock is up 230% and trading near its all-time high. 

Nevertheless, a pivotal event looms on the horizon that carries the potential to substantially amplify or diminish the current gains for both the stock and SMH.

NVDA is poised to disclose its earnings on Tuesday, November 21st, after the market's close. This is a huge catalyst for NVDA, its stakeholders, and the entire sector, including SMH. A positive outcome could propel the sector to new highs, while a shortfall in top-line results might profoundly affect SMH's stock price. Consequently, it is imperative for participants in the sector and SMH to monitor the event closely.