On 28 October, Alphabet chief executive Sundar Pichai told investors the company was “seeing very, very robust demand signals.” His finance chief added that Alphabet expects its capital spending “to increase significantly in 2027.” For the chipmakers that fill those data centers, it was about the best news a customer can give.
Eight days later, chip ETFs had their worst day since March 2020. SMH, the biggest chip ETF, fell 11% on 5 November, and SOXX, its closest rival, fell even more. From 6 October, the day the Nasdaq set its record, 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 midterms. Democrats won both chambers of Congress on 3 November, and investors began to price in a slower AI build-out. UBS analysts estimated that “data-center pauses will slow the pace of buildout into 2028,” putting about 30% of the US data-center capacity due in 2028 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’s 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, so a price that rises a third while earnings double drags the multiple down. For most of the year, investors paid up to keep pace: 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% in the year and its price 43%, so its P/E also fell from just over 40x.
The earnings line is still rising. Holdings that make up nearly half of SMH’s earnings lifted their trailing earnings in the past month alone as third-quarter reports came in. Nvidia, the fund’s largest holding, reports on 17 November, the next test for that line.
Back near the median, still up for the year
SMH now trades slightly below its median valuation of the past decade. SOXX, at 26.2x, sits just above its 25.8x median: it slipped under it on Friday and climbed back with Monday’s bounce.
Even after the fall, SMH is up 35% this year and SOXX nearly 47%.
A trailing P/E looks back, and this sell-off is about the future: data centers that may or may not be built in 2028, a worry only future earnings can settle. 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.
See the full breakdown on ETF Copilot: etf-copilot.com/go/substack/smh-chip-etfs-reset
Written by the ETF Copilot research team. 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.
Sources: Alphabet Q3 2026 earnings call, 28 October 2026; Reuters on UBS and data-center curbs, 5 November 2026; Qualcomm Q4 fiscal 2026 results; Reuters, Wall St Week Ahead, 6 November 2026; Nvidia results date.