Black rock is responsible for more than $10 trillion in client funds, making it the largest asset manager in the world. About $3.3 trillion of that is managed by its iShares subsidiary, which offers more than 1,400 exchange-traded funds (ETFs) to investors.
The iShares Semiconductor ETF (NASDAQ: SOXX) is one of those 1,400 funds, and thanks to its top positions in explosive artificial intelligence (AI) stocks like Nvidia (NASDAQ: NVDA)it generates spectacular returns for investors.
The iShares Semiconductor ETF recently completed a stock split
The iShares Semiconductor ETF has delivered a compound annual return of 30.3% over the past five years, crushing the industry’s average annual gain of 15.1%. S&P500 (SNPINDEX: ^GSPC) index over the same period.
As a result, the ETF traded as high as $680 in March, making it somewhat expensive for smaller investors. To solve that problem, iShares executed a 3-for-1 stock split, tripling the number of shares in circulation and organically reducing the price per share by two-thirds.
Stock splits do not change the fundamental value of the underlying asset. But investors can now buy a share of the iShares Semiconductor ETF for as little as $234 (at the time of writing), making it much more accessible. The momentum is likely to continue thanks to the proliferation of AI.
Here’s how a $400 per month investment in this ETF can turn into $1 million over the long term.
The best chip stocks in the world, all in one ETF
The semiconductor industry is the beating heart of the AI ​​revolution. Without advanced data center chips like those designed by Nvidia, developing AI applications like OpenAI’s ChatGPT would not be possible.
Nvidia’s graphics processing units (GPUs) are by far the most powerful chips in the industry, and sales have grown so much that Nvidia is now the third largest company in the world, with a valuation of $2.93 trillion. The market cap was only $360 billion at the beginning of 2023, so the pace of value creation through AI has been astonishing.
But many of the 30 stocks in the iShares Semiconductor ETF are now contributing to the AI ​​industry, especially the top five stocks, which account for 36.9% of the portfolio’s total value.
|
stock |
Weighting of iShares Semiconductor ETF |
|---|---|
|
1. Nvidia |
10.29% |
|
2. Broadcom |
7.59% |
|
3. Qualcomm |
7.50% |
|
4. Advanced micro devices |
6.44% |
|
5. Micron technology |
5.13% |
Data source: iShares. The portfolio weights are accurate as of May 31, 2024 and are subject to change.
Broadcom is a multi-faceted AI company that makes data center hardware but also develops AI software, both in-house and through subsidiaries such as cybersecurity giant Symantec.
Qualcomm, on the other hand, has developed a slew of processors designed to bring devices like personal computers and smartphones into the AI ​​era. While AI is being processed in the data center today, our devices will soon be able to handle some of these workloads.
Advanced Micro Devices has emerged as a major competitor to Nvidia in the data center, thanks to its new MI300 GPUs, which have already won a number of high-profile customers in the tech industry.
Finally, Micron Technology is a global leader in memory chips (DRAM) and storage chips (NAND). AI workloads require significantly more of both, whether in the data center or on a PC, so this company may be on the cusp of a substantial growth phase.
$400 a month turned into $1 million
Since its inception in 2001, the iShares Semiconductor ETF has delivered a compound annual return of 11.7%. However, the proliferation of technologies such as cloud computing and AI has led to a much faster average annual return of 25.3% over the past decade.
The table below summarizes the potential returns investors could earn by investing $400 per month in the ETF over 10 years, 20 years and 30 years, under three scenarios:
-
The ETF continues to deliver an average annual return of 11.7%.
-
The ETF delivers an average annual return of 18.5% (midpoint of scenarios 1 and 3).
-
The ETF maintains its 10-year average annual return of 25.3%.
|
Monthly |
Link |
Balance afterwards |
Balance afterwards |
Balance afterwards |
|---|---|---|---|---|
|
$400 |
11.7% |
$91,693 |
$384,177 |
$1,321,232 |
|
$400 |
18.5% |
$139,261 |
$1,010,013 |
$6,470,222 |
|
$400 |
25.3% |
$217,905 |
$2,877,483 |
$35,397,833 |
Calculations by author.
A monthly investment of $400 in this ETF will lead to a portfolio worth $1.3 million after 30 years, even if it returns to the long-term average of 11.7% per year.
To be clear, these return levels are not guaranteed in any way, especially over a 30-year period. A lot can change as the years go by and market interests are by no means static.
However, many expect the rise of AI to be a game-changer for the chip sector and the entire economy in the long term, and Nvidia’s incredible rise over the past year could be just a taste of what’s to come. Global consultancy PwC believes AI will add $15.7 trillion to the global economy by 2030, and Cathie Wood’s Ark Investment Management puts that figure at as much as $200 trillion.
If any of these predictions are even remotely correct, the iShares Semiconductor ETF will likely be a great place for investors to put their money. Of course, the ETF will underperform if AI fails to live up to the hype, so it’s best to own the ETF as part of a balanced portfolio.
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Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds positions in and recommends Advanced Micro Devices, Nvidia, Qualcomm, and iShares Trust-iShares Semiconductor ETF. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
1 Stock-Split ETF That Could Turn $400 a Month into $1 Million, With Help from Nvidia was originally published by The Motley Fool
