If you own VanEck Semiconductor ETF (NASDAQ:SMH) for AI exposure, you are betting on the same handful of chip designers everyone else holds. SMH is the default vehicle for the trade: a concentrated basket led by NVIDIA, Taiwan Semiconductor, and Broadcom that has produced the headline gains of the AI cycle. The case for owning it is straightforward and still mostly intact. The problem is what it leaves out. The hyperscalers’ spending on those chips also needs land, steel, switchgear, transformers, cooling systems, and rail capacity, and SMH owns none of that. A different fund does, at a fee that is competitive with most thematic products on the market.
That fund is Global X U.S. Infrastructure Development ETF (NYSEARCA:PAVE), which charges 0.47% and holds engineering, electrical, materials, and rail companies that are physically building the AI buildout.
Where SMH Falls Short for an AI Infrastructure Thesis
The design of SMH really concentrates risk in chip pricing and foundry cycles. When hyperscaler orders slow down, or an inventory correction sets in, the same concentration that powered the rally can reverse course just as fast. The fund also provides almost no exposure to the actual gating constraints of the current cycle, namely, power and physical capacity. Data center developers are out there signing multi-year contracts for transformers, switchgear, and grid interconnects that have nothing to do with chip ASPs at all. A semiconductor-only allocation like SMH captures the demand signal just fine, but it completely misses the broader supply chain that is feeding into that demand.
What PAVE Actually Owns
The fund holds 119 equity positions with $12.43 billion in net assets. The top weights map directly onto AI infrastructure spend: Quanta Services at 3.37%, which builds electrical transmission lines and substations for hyperscaler campuses; Eaton at 3.16%; Trane Technologies at 3.33%, which supplies power management and liquid cooling; and Sempra at 3.15%, which delivers gas and electricity. Rails carry the steel and transformers: Union Pacific at 3.22% and Norfolk Southern at 3.06%. None of these names sit in the semiconductor fund, SMH.
The exposure also captures reshoring and federal infrastructure spending, two adjacent tailwinds that do not require AI capex to keep working. Goldman Sachs Asset Management’s 2026 outlook describes capex-to-sales ratios for European industrial firms at a 10-year high, and Vanguard’s baseline projects U.S. capital expenditure growth of 7.0% in 2026, well above the 3.8% pace of 2023-2024.
The Performance Gap
PAVE is up 20.97% year-to-date through June 23, 2026, against 7.58% for the SPDR S&P 500 ETF Trust (NYSEARCA:SPY). Over the trailing year, PAVE has returned 39% versus 22.23% for SPY, and over five years, it is up 132.05% against 72.57%. It is a cyclical fund that has kept pace with the AI trade while drawing on a different set of drivers.
The Tradeoffs to Flag
A fund like PAVE is pretty rate sensitive, and that is worth keeping in mind. The 10-year Treasury yield was at 4.51% as of June 22, 2026, above the 12-month average of 4.243%. If yields keep climbing from here, it will put pressure on the construction and capex names that anchor this portfolio. Housing starts have already slipped to 1.18 million annualized units in May 2026, down 15.4% from April, indicating real weakness in that part of the cycle. The data center thesis does look more durable than the residential side, but the cyclicality across the fund is still very real.
This fund focuses on physical infrastructure rather than semiconductors, so it does not provide direct exposure to NVIDIA’s earnings power. If that is what you are after, you probably want to keep some allocation to the semiconductor side of your portfolio. The case here is really about replacing a piece of your SMH position, not ditching the entire thing and going all in on PAVE.
Making the Switch
In a taxable account, selling appreciated SMH shares triggers capital gains. A partial swap, redirecting new contributions to PAVE or trimming the most appreciated SMH lots, captures most of the diversification benefit without a full tax event. In a retirement account, the trade is mechanical.
The decision worth weighing is whether your AI exposure should rest entirely on chip pricing power or be split between the chips and the steel, copper, and concrete underneath them. PAVE answers the second question. SMH does not, and the 0.47% expense ratio is competitive with other thematic ETFs.
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