Chip ETFs Earnings Doubled In A Year. Their P/E Fell From 40x To 25x.

On 28 October, Alphabet Inc. (GOOGL) chief executive Sundar Pichai told investors the company was “seeing very, very robust demand signals.” On the same earnings call, his finance chief said Alphabet expects its capital spending “to increase significantly in 2027.” For the chipmakers inside chip ETFs, which supply those data centers, that was about the best news a customer can give.

Eight days later, chip ETFs had their worst day since March 2020. The VanEck Semiconductor ETF (NASDAQ:SMH), the biggest chip ETF, fell 11% on 5 November. The iShares Semiconductor ETF (NASDAQ:SOXX) fell even more. From 6 October, when the Nasdaq set its record close, to Monday’s close, SMH lost 23% and SOXX 25%, even after a sharp bounce on Monday.

The crash took the headlines. The bigger change in these funds built up over a whole year: the earnings behind them more than doubled. SMH traded at 40.6x trailing earnings a year ago. At Monday’s close it stood at 25.5x, under its median of 27.1x since 2017.

Washington Spooked The AI Trade

The worst of it came after the midterm elections. Democrats won both chambers of Congress on 3 November, and investors began to price in a slower build-out of AI data centers. UBS analysts estimated that “data-center pauses will slow the pace of buildout into 2028.” In their view, about 30% of the US data-center capacity due to be added in 2028 is at risk. “The slowdown is a negative for semis and AI infrastructure,” they wrote.

Results from the chip designers did little to calm nerves. Qualcomm Inc. (QCOM) reported that its handset chip sales fell 26% from a year earlier.

By Friday, strategists were talking about the mood as much as the numbers. “It is a fragile momentum trade,” Marvin Loh, senior global macro strategist at State Street, told Reuters. Keith Lerner, chief investment officer at Truist Advisory Services, wrote of “something of a buyers’ strike in tech.”

Earnings Outran The Price All Year

Over the past year, SMH’s price rose 33%, a gain that survived the crash. The earnings behind one share rose 112% over the same stretch.

A P/E is the price divided by those earnings. When the price rises by a third and the earnings double, the multiple falls. For most of the year, investors paid up to keep pace, and SMH’s P/E climbed to about 50x in June. In October, the price stopped chasing the earnings, and the multiple fell back to earth.

SOXX went the same way. Its earnings rose 119% over the year, while its price rose 43%. Its P/E also fell from just over 40x.

The earnings line is still rising. Third-quarter reports came in over the past month. Holdings that make up nearly half of SMH’s earnings lifted their trailing earnings in that month alone. Nvidia Corp. (NVDA), the fund’s largest holding, reports on 17 November, the next test for that line.

Chip ETFs Are Back Near The Median And Still Up For The Year

SMH now trades slightly below its median valuation of the past decade. SOXX trades at 26.2x, just above its 25.8x median. It slipped under that median on Friday and climbed back above it with Monday’s bounce.

Even after the fall, SMH is up 35% this year and SOXX nearly 47%.

A trailing P/E looks back. This sell-off is about the future, and about data centers that may or may not be built in 2028. Only future earnings can settle that worry. For now, the companies inside these funds earn about twice what they did a year ago, at a far lower multiple.

Alphabet promised to spend more. Chip investors priced in less.

Discloure: Data as of 9 November 2026. This is not investment advice or a recommendation to buy or sell any security. ETF Copilot receives no compensation from the issuers of the funds mentioned. Managers of ETF Copilot may or may not hold positions in the funds mentioned.

First published in the ETF Copilot newsletter.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.