black rock is responsible for more than $10 trillion in client funds, making it the world’s largest asset manager. About $3.3 trillion is managed by its subsidiary iShares, 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 holdings 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 ETFs has generated compound annual returns of 30.3% over the past five years, dwarfing the company’s average annual gain of 15.1%. S&P500 (INDEXSNP: ^GSPC) index over the same period.
As a result, the ETF was trading as high as $680 in March, making it somewhat expensive for small investors. To address this issue, iShares conducted a 3-for-1 stock split, which tripled the number of shares outstanding and organically reduced 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 in the iShares Semiconductor ETF for just $234 (at the time of this writing), making it much more accessible. This momentum will likely continue thanks to the proliferation of AI.
Here’s how it could turn a $400 per month investment in this ETF into $1 million over the long term.
The World’s Best Chip Stocks, All in One ETF
The semiconductor industry is at the heart of the AI ​​revolution. Without advanced data center chips like those designed by Nvidia, the development of 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 their sales have soared to the point where Nvidia is now the third-largest company in the world, with a valuation of $2.93 trillion. . Its market capitalization was only $360 billion at the start of 2023, so the pace of value creation through AI has been astonishing.
But many of the iShares Semiconductor ETF’s 30 stocks now contribute to the AI ​​sector, particularly its top five holdings, which account for 36.9% of its total portfolio value.
Action | Weighting of iShares Semiconductor ETFs |
|---|---|
1.Nvidia | 10.29% |
2. Broadcom | 7.59% |
3. Qualcomm | 7.50% |
4. Advanced microsystems | 6.44% |
5. Micron technology | 5.13% |
Data source: iShares. Portfolio weightings are accurate as of May 31, 2024 and are subject to change.
Broadcom is a multifaceted AI company that makes data center hardware, but it also develops AI software both on its own and through its subsidiaries like cybersecurity giant Symantec.
Qualcomm, meanwhile, has developed a range of processors designed to bring devices like personal computers and smartphones into the AI ​​era. While AI is processed in data centers today, our devices will soon be able to handle some of these workloads.
Advanced Micro Devices has become a key competitor to Nvidia in the data center space, thanks to its new MI300 GPUs, which have already won a number of high-profile customers in the technology industry.
Finally, Micron Technology is a global leader in memory (DRAM) and storage (NAND) chips. AI workloads require much more of both, whether in the data center or on a personal computer, so this company could be on the cusp of a substantial growth phase.
Turn $400 a month into $1 million
Since its inception in 2001, the iShares Semiconductor ETF has generated 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 10 years.
The table below shows 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 generate an average annual return of 11.7%.
The ETF offers 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 | Compound | Balance after | Balance after | Balance after |
|---|---|---|---|---|
$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.
Making monthly investments of $400 in this ETF will lead to a portfolio worth $1.3 million after 30 years, even if it returns to its long-term average return of 11.7% per year.
Let’s be clear, these return levels are in no way guaranteed, especially over a 30 year period. A lot can change over the years and market interests are by no means static.
However, many expect the rise of AI to be a long-term game changer for the chip industry as well as the broader economy, and Nvidia’s incredible rise over the This past year could be just a taste of what’s to come. International consultancy PwC estimates that AI will add $15.7 trillion to the global economy by 2030, and Cathie Wood’s Ark Investment Management puts the figure at $200 trillion.
If any of these predictions are even remotely accurate, 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 hold it as part of a balanced portfolio.
Should you invest $1,000 in iShares Trust – iShares Semiconductor ETF right now?
Before purchasing shares in iShares Trust – iShares Semiconductor ETF, consider this:
THE Motley Fool Stock Advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and iShares Trust – iShares Semiconductor ETF was not one of them. The 10 stocks selected could produce monster returns in the years to come.
Consider when Nvidia made this list on April 15, 2005…if you had invested $1,000 at the time of our recommendation, you would have $741,362!*
Equity Advisor provides investors with an easy-to-follow plan for success, including portfolio building advice, regular analyst updates, and two new stock picks each month. THE Equity Advisor the service has more than quadrupled the return of the S&P 500 since 2002*.
*Stock Advisor returns as of June 3, 2024
Anthony DiPizio has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends the Advanced Micro Devices, Nvidia, Qualcomm, and iShares Trust-iShares Semiconductor ETFs. The Motley Fool recommends Broadcom. The Mad Motley 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
