VanEck product manager Nick Frasse discussed the current state of the semiconductor industry and the specific role of memory manufacturers in a conversation with Phil Rosen. Frasse, who manages the VanEck Semiconductor ETF (NASDAQ: SMH), which holds a $67.79 billion net asset value, emphasized that physical construction timelines are the primary factor controlling the pace of artificial intelligence expansion.
Frasse characterized data centers as functioning as “token factories” that consume resources at accelerating rates as agentic AI executes broader prompts. He noted that overall semiconductor demand has vastly outpaced supply across all technology sectors. The supply chain, he explained, operates through collaborative layers rather than direct competition, with fabless design firms outsourcing manufacturing to foundries like Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSMC).
Frasse highlighted the critical dependency of the industry on ASML Holding NV (NASDAQ: ASML), stating that there is only one company in the world manufacturing EUV lithography machinery. Consequently, he argued that demand increases at foundries automatically drive revenue for equipment suppliers. Following early packaging constraints on GPUs, Frasse identified memory as a current major bottleneck in the AI buildout, noting that producing high-bandwidth memory requires building new fabrication plants, which extends supply timelines.
Regarding market cycles, Frasse stated that multi-year commitments from corporate balance sheets have reduced historical industry cyclicality. He acknowledged that cycles exist even in bull markets and suggested there could be reversions to the mean. He added that some investors are currently unwilling to pay up for Nvidia Corp. (NASDAQ: NVDA) but may direct capital toward memory suppliers such as Micron Technology Inc. (NASDAQ: MU) and SK hynix Inc. (NASDAQ: SKHY).
To address concerns regarding massive capital expenditure and potential market bubbles, Frasse argued that physical infrastructure timelines naturally govern industry expansion. Constructing a semiconductor fabrication plant or standing up a data center requires two to three years. Frasse explained that these physical time limitations create an “inherent governor” that will “help a giant bubble from being created,” as compute constraints prevent overbuilding.
