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Nvidia and AMD Could Help This Stock-Split ETF Turn $200,000 Into $1 Million

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Nvidia and AMD Could Help This Stock-Split ETF Turn 0,000 Into  Million

Semiconductors are at the heart of the artificial intelligence (AI) revolution. Developing the most advanced AI models wouldn’t be possible without the data center graphics processing units (GPUs) designed by companies like Nvidia (NASDAQ: NVDA).

That company has added $2.8 trillion to its market cap in the past 18 months alone thanks to surging demand for its GPUs. But the value created by AI is now reaching other companies in the chip space, including Nvidia’s competitors like Advanced micro devices (NASDAQ: AMD).

Investors could take advantage of this trend by buying a cross-section of the entire chip industry, and an exchange-traded fund (ETF) like the iShares Semiconductor ETF (NASDAQ: SOXX) makes that very easy.

Image source: Getty Images.

The iShares Semiconductor ETF recently completed a stock split

The iShares Semiconductor ETF has delivered a compound annual return of 25.3% over the past 10 years, surpassing the 12.7% annual return in the S&P 500 index over the same period.

The ETF climbed as high as $680 per share in March, making it a bit expensive for smaller investors. To address that problem, iShares executed a 3-for-1 stock split, tripling the number of shares outstanding and organically reducing the price per share by two-thirds. One share of the ETF now trades for about $254.

That’s positive news, because a broader investor base can now benefit from this ETF’s momentum thanks to the AI ​​boom. For example, it could turn a $200,000 investment into $1 million over the long term — but don’t worry, investors with a starting balance could see a five-fold return if this scenario plays out.

All popular chip stocks neatly packaged in one ETF

The iShares ETF holds 30 different semiconductor stocks, but the focus is on the top five holdings, which account for 37.8% of the portfolio’s total value:

stock

iShares ETF Portfolio Weighting

1. Broadcom

9.57%

2. Nvidia

8.60%

3. Advanced Micro Devices (AMD)

7.22%

4. Applied materials

6.59%

5. Qualcomm

5.82%

Data source: iShares. Portfolio weightings are accurate as of July 3, 2024 and are subject to change.

Broadcom (NASDAQ: AVGO) makes networking components for the data center, including switches that control how quickly data travels from servers to devices. AI-related revenues soared 280% in the recent second quarter of fiscal 2024, and it’s forecast to generate a record $11 billion from AI for all of fiscal 2024 (which ends Oct. 30).

Nvidia makes the world’s most powerful GPUs for developing AI models. Data center revenue has grown by triple digit percentages in each of the last four quarters, and the company still can’t keep up with demand. The company is gearing up to ship new GPUs based on its latest Blackwell architecture, such as the GB200, which can infer AI models five times faster than the industry-leading H100. It could save developers a ton of money, who often pay by the minute for compute capacity.

AMD is attempting to compete with Nvidia in the data center market with its new MI300 GPU. However, the company already has a dominant 90% share of the processor market for AI-enabled personal computers, which could present an incredible opportunity as AI migrates from the data center to the devices we use every day.

In addition to the top five, the iShares ETF includes a number of other stocks that are critical to the AI ​​sector. Taiwanese semiconductor production produces half of the world’s chips, including chips designed by Nvidia and AMD. Micron technologyon the other hand, makes memory and storage chips that are essential for processing AI workloads. The latest HBM3e memory solution powers some of Nvidia’s latest GPUs.

From $200,000 to $1 million

Since its inception in 2001, the iShares ETF has delivered a compound annual return of 11.7%. Over the past 10 years, however, it has delivered a compound annual return of 25.3%, thanks to explosive demand for chips in segments such as smartphones, cloud computing, enterprise software and now AI.

The table below shows how long it could take for the iShares ETF to turn a $200,000 investment into $1 million, based on three scenarios:

  1. Scenario 1:The ETF will deliver an annual return of 11.7% in the future, which is in line with the long-term average.

  2. Scenario 2:The ETF will deliver an annual return of 18.5% in the future (middle of scenarios 1 and 3).

  3. Scenario 3:The ETF will deliver an annual return of 25.3% in the future, which is in line with the 10-year average.

Starting balance

Compound annual return

Time to reach $1 million

$200,000

11.7%

15 years

$200,000

18.5%

10 years

$200,000

25.3%

8 years

Calculations by author.

In short, the ETF could deliver a five-fold return over the next 15 years, even if it returns to its long-term average annual return of 11.7%. But AI could be the biggest financial opportunity the chip sector has ever had. According to Goldman SachsAI could add $7 trillion to the global economy over the next decade, and Cathie Wood’s Ark Investment Management predicts that this figure will reach $200 trillion by 2030!

That said, this ETF will almost certainly underperform if AI doesn’t live up to expectations, as stocks like Nvidia would lose a large portion of the profits they’ve generated over the past year. There’s also the possibility that AI software will eventually become a bigger value creator than AI hardware, which could shift profits to stocks outside the chip space. For this reason, it’s best to buy the iShares ETF as part of a balanced portfolio.

Should You Invest $1,000 in iShares Trust – iShares Semiconductor ETF Now?

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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Applied Materials, Goldman Sachs Group, Nvidia, Qualcomm, Taiwan Semiconductor Manufacturing, and iShares Trust-iShares Semiconductor ETF. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.

Nvidia and AMD Could Help This Stock Split ETF Turn $200K Into $1 Million was originally published by The Motley Fool

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