1 ETF divided into stocks that could turn $500 a month into $1 million, with the help of Nvidia

BlackRock oversees over $10 trillion in client money, making it the world’s largest asset manager. Of that, about $3.3 trillion is parked in its iShares subsidiary, which operates more than 1,400 exchange-traded funds (ETFs).

The iShares Semiconductor ETF (NASDAQ: SOXX) is one such fund and generates significant returns for investors thanks to its large holdings in top stocks with artificial intelligence (AI) chips such as Nvidia and Advanced microdevices.

The iShares Semiconductor ETF completed a stock split earlier this year

The iShares ETF has delivered a compounded annual return of 25.4% over the past decade, slightly beating the S&P 500 index, which has gained an average of 13.2% per year over the same period. That propelled the ETF to a share price of around $680 in March, making it a little expensive for investors with small portfolios.

As a result, iShares conducted a 3-for-1 stock split that tripled the number of shares outstanding and organically reduced the price per share by two-thirds. The stock split does not change the value of the underlying asset, but investors can now buy a share of the ETF for as little as $231.

Chip companies are at the heart of the AI ​​revolution. Without them, tech giants and start-ups alike wouldn’t be able to develop powerful AI models, so this ETF is likely to continue generating positive returns. Here’s how a $500 per month investment could turn into $1 million over the long term.

A simple way to invest in the semiconductor industry

The iShares ETF was founded in 2001. It manages $14.8 billion on behalf of investors, spread across 30 different chip stocks, but is heavily weighted to its top five holdings, which account for 38% of the entire value of his portfolio:

Data source: iShares. Portfolio weights are accurate as of August 15, 2024 and are subject to change.

Broadcom is a multifaceted AI company. It makes connectivity and networking equipment for the data center, which is increasingly important to operators running thousands of graphics processing units (GPUs) to facilitate AI development. Broadcom also owns Symantec, which integrates AI into its cybersecurity tools, and VMware, which sells software to help developers efficiently deploy their data center infrastructure.

Nvidia designs the most powerful data center GPUs in the industry, responsible for the most advanced AI models to date. Demand continues to outstrip supply, driving the company’s revenue growth, and this trend is likely to continue in the near future.

The story continues

AMD has become a worthy competitor to Nvidia in the data center space, but it is also the leader in the semiconductor market for AI personal computers. This could be a significant growth driver for the company in the coming years.

Outside of its top five holdings, the iShares ETF owns a number of other key chip stocks. Taiwan Semiconductor Manufacturingfor example, it makes many of the chips designed by Nvidia and AMD. Then there is Micron technologywhich is facing growing demand for its memory and storage chips, driven by the AI ​​boom.

Turning $500 a month into $1 million

The iShares ETF has generated a compounded annual return of 12.1% since its inception in 2001. As mentioned, this annualized return has accelerated to 25.4% over the past 10 years and is due to the rapid adoption of technologies such as the smartphone , enterprise software, cloud computing and AI, which require an ever-increasing amount of computing power.

The table highlights the potential returns an investor could earn on $500 per month over 10 years, 20 years, and 30 years, based on three annual growth rates:

Calculations by author.

There is a good argument that the past 10 years have seen stock market performance that is unlikely to be repeated in the future. At some point, the rule of large numbers kicks in to limit future earnings. For example, if Nvidia stock were to gain 25.4% per year over the next 30 years, the company would eventually be valued at $2.7. quadrillion – or 900 times more than it is worth today — which is not realistic.

But even if the ETF returns to its 12.1% annual return, it could still turn a $500 monthly investment into more than $1 million over 30 years.

That said, AI will likely create substantial value from here, which could result in outperforming the long-term average ETF return. Nvidia CEO Jensen Huang, for example, believes data center operators will spend $1 trillion upgrading and expanding their infrastructure over the next five years, and many of the stocks in this ETF will be direct beneficiaries.

Additionally, PwC believes that the widespread adoption of AI will add $15.7 trillion to the global economy between now and 2030, fueling demand for innovation in the chip space.

Of course, if AI fails to live up to the hype, most of the shares in the iShares ETF could lose value, leading to a period of underperformance. That’s why it’s always a good idea to hold this ETF as part of a balanced portfolio that is less exposed to AI success or failure.

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

1 Share ETF That Could Turn $500 a Month into $1 Million With Nvidia’s Help was originally published by The Motley Fool