By Nick Frasse, Associate Product Manager
SMH Performance Overview for Q2 2023
VanEck Semiconductor ETF has had strong performance in Q2 of 2023, up 15.78% over that time period. Performance was largely due to exposure to NVIDIA Corp. ($NVDA) and their exposure to the growing GPU demand for Artificial Intelligence models. Semiconductors continue to be a primary driver of technological innovation globally, whether its complex systems on a chip or basic memory and components, we believe the sector is a long term trend that investors should consider.
SMH Top Holdings
|Daily Holdings (%) as of 08/31/2023|
|Ticker||Holding Name||% of Net Assets||Identifier (FIGI)||Shares||Asset Class||Market Value(US$)||Notional Value|
|NVDA US||Nvidia Corp||21.63||BBG000BBJQV0||4,476,165||Stock||2,209,211,236||—|
|TSM US||Taiwan Semiconductor Manufacturing Co L||10.25||BBG000BD8ZK0||11,183,469||Stock||1,046,437,194||—|
|AVGO US||Broadcom Inc||5.47||BBG00KHY5S69||605,864||Stock||559,145,827||—|
|LRCX US||Lam Research Corp||4.79||BBG000BNFLM9||695,940||Stock||488,828,256||—|
|AMAT US||Applied Materials Inc||4.71||BBG000BBPFB9||3,148,449||Stock||480,957,069||—|
|INTC US||Intel Corp||4.68||BBG000C0G1D1||13,589,266||Stock||477,526,807||—|
|ASML US||Asml Holding Nv||4.55||BBG000K6MRN4||702,784||Stock||464,209,916||—|
|TXN US||Texas Instruments Inc||4.52||BBG000BVV7G1||2,745,990||Stock||461,491,079||—|
|ADI US||Analog Devices Inc||4.17||BBG000BB6G37||2,356,637||Stock||426,362,766||—|
|AMD US||Advanced Micro Devices Inc||4.15||BBG000BBQCY0||4,008,364||Stock||423,764,242||—|
These are not recommendations to buy or to sell any security. Securities and holdings may vary.
Top Two Contributors for SMH in Q2 2023
NVIDIA Corp. (NVDA) – 15.86% Weight | 7.57% Contribution to return
In the second quarter, Nvidia exceeded expectations, achieving an EPS of $2.70 (surpassing predictions by 62 cents) and recording total sales of $13.51 billion, significantly surpassing anticipated figures. This notable success was driven by robust sales in data centers, which outperformed expert estimates by almost 30%, alongside elevated sales in the Gaming and ProViz sectors.
Their forthcoming quarter forecasts appear promising, with anticipated sales reflecting a 27% increase, augmented profitability per sale, and prudent operational spending. Market analysts responded favorably to these outcomes, revising their forward expectations for Nvidia upwards. Acknowledging Nvidia’s adept performance in data centers and enhancing the gaming domain, they highlighted the company’s strategic efforts to meet escalating demand by diversifying its product portfolio. However, a degree of caution was expressed due to potential challenges related to chip sales in China and subdued performance in the automotive sector.
Broadcom Inc. (AVGO) – 5.07% Weight | 1.72% Contribution to return
In Q2, Broadcom exceeded expectations with revenue up 3.5% and earnings per share (EPS) beating forecasts by 2.0% or $0.30. Analysts were upbeat about strong Networking growth driven by AI demand, boosting the Semi business before the iPhone refresh. Positive factors include an Apple deal, projected AI revenue increase, and optimism about deal closures. This led to raised estimates and a higher average price target of $847.31.
Top Two Detractors for SMH in Q2
QUALCOMM Inc. (QCOM) – 4.41% Weight | -0.58% Contribution to return
Following Qualcomm’s Q3 report, shares fell broadly. The company’s revenue of $8.44 billion was 0.8% below expectations, while EPS of $1.87 exceeded predictions by $0.06. Across its segments, QCT’s (technology business) revenue was below target but EBT (earnings before taxes) was in line, while QTL (licensing business) missed on both revenue and EBT. The management’s Q4 guidance indicates that the midpoint of their revenue and EPS goals is below the previous consensus. Analysts have generally labeled the Q3 results and outlook as disappointing, citing challenges from China, Huawei, and inventory adjustments that had a greater impact than anticipated. Despite this, some analysts find the valuation favorable and remain optimistic about the company’s longer-term prospects.
STMicroelectronics (STM) – 2.03% Weight | -0.33 Contribution to return
STMicroelectronics reported strong earnings and guidance, the company anticipates gross margin pressures in the second half of 2023, with a full-year gross margin guidance of 47-48%. During their quarterly earnings call, management highlighted three key factors contributing to this pressure: increased manufacturing input costs, less optimized production levels in consumer and personal electronics, which is expected to be a $0.5 billion headwind in the second half, and the impact from the ramp-up of 300-millimeter graph as it enters the cost of goods sold. However, the company expects a positive contribution to the gross margin in 2024. Additionally, by the end of 2023, the company anticipates its number of days of inventory to be between 105-110 days, which is slightly higher than the year-end 2022 figures.
|Quarter End Returns as of 6/30/2023|
|1 Yr||5 Yr||10 Yr||Since Inception||Inception Date||Expense Ratio|
|VanEck Semiconductor ETF||SMH||NAV||51.36||25.77||24.83||23.87||12/20/2011||Gross||0.35%|
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