With $10 trillion in client funds in its custody, Blackrock is the world's largest asset manager. It's also the parent company of iShares, which offers more than 1,400 exchange-traded funds (ETFs) to investors.
The iShares Semiconductor ETF (SOXX 0.33%) manages a $12.9 billion portfolio filled with the world's leading chip stocks, many of which operate at the forefront of the artificial intelligence (AI) revolution.
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The iShares Semiconductor ETF just completed a stock split
The iShares Semiconductor ETF has delivered compound annual returns of 25.3% over the last 10 years, almost doubling the 13.1% annual returns of the S&P 500 index over the same period.
The ETF soared to $680 per share in March, making it rather expensive for many retail investors. In response, iShares executed a 3-for-1 stock split that increased the number of shares in circulation threefold and reduced the price per share by two-thirds (to around $225 as of this writing).
The ETF is now more accessible to a wider investor base, which is great news because its momentum will likely continue given the sheer size of the opportunity in the AI industry. Here's how it could turn an investment of $500 per month into more than $1 million over the long term, thanks to top holdings like Nvidia (NVDA -0.85%) and Advanced Micro Devices (AMD 1.11%).
Betting on the world's top chip companies
Investors are likely to be familiar with AI-powered chatbots like ChatGPT, Gemini, and Claude, which can interpret and generate text, images, videos, and computer code. But it takes data centers filled with advanced chips for developers to build, train, and deploy AI models. Without that hardware behind it, the software couldn't exist and operate.
Nvidia designs the industry's most powerful graphics processing units (GPUs), which are ideal for those purposes. The company is now worth $2.3 trillion, and $1.5 trillion of that value was created in the past 12 months alone on the back of surging demand for its cutting-edge GPUs from data center operators like Microsoft, Amazon, and Meta Platforms.
The iShares Semiconductor ETF holds 30 different stocks, but Nvidia is its largest position. The ETF is heavily weighted toward its top five holdings, which account for 36.4% of the total value of its portfolio.
|
Stock |
iShares Semiconductor ETF Weighting |
|---|---|
|
1. Nvidia |
8.78% |
|
2. Broadcom |
7.84% |
|
3. Advanced Micro Devices |
7.21% |
|
4. Qualcomm |
6.44% |
|
5. Intel |
6.16% |
Data source: iShares. Portfolio weightings as of March 28, 2024.
Broadcom is a leader in networking and server connectivity solutions for high-performance computing. Its Tomahawk 5 is a high-bandwidth data center switch designed to accelerate AI and machine learning workloads. Switches regulate how quickly data travels from one point to another, and when developers are using thousands of powerful GPUs, that's a key piece of the equation.
AMD, on the other hand, is considered the closest competitor to Nvidia thanks to its latest data center GPUs, the MI300 series. The company also designs industry-leading chips for AI-enabled personal computers.
A number of important chip stocks sit outside of the ETF's largest holdings. Micron Technology is a top producer of memory (DRAM) and storage (NAND) chips, both of which are critical to extracting maximum performance from data center hardware. Then there is Taiwan Semiconductor Manufacturing, which is by far the largest third-party foundry, churning out many of the most advanced chips on the market -- including those designed by Nvidia and AMD.
Turning $500 per month into $1 million
The iShares Semiconductor ETF was established in 2001, and it has delivered a compound annual return of 11.6% since then. But the rapid rises of cloud computing and AI have led to a much faster average annual gain of 25.3% over the last 10 years.
The table below shows the potential returns an investor could see by investing $500 each month in the ETF over 10 years, 20 years, and 30 years, under three scenarios:
- Scenario 1: The ETF continues to deliver its average long-term annual gain of 11.6%.
- Scenario 2: The ETF delivers an average annual gain of 18.4% (midpoint of scenarios 1 and 3).
- Scenario 3: The ETF maintains its 10-year average and continues to deliver annualized gains of 25.3%.
|
Monthly Investment |
Compound Annual Return Rate |
Balance After 10 Years |
Balance After 20 Years |
Balance After 30 Years |
|---|---|---|---|---|
|
$500 |
11.6% |
$113,941 |
$473,803 |
$1,615,361 |
|
$500 |
18.4% |
$172,970 |
$1,243,879 |
$7,893,390 |
|
$500 |
25.3% |
$272,381 |
$3,596,854 |
$44,247,291 |
Calculations by author.
Making $500 monthly investments for 30 years would result in a portfolio worth more than $1.6 million even with an average annual return of just 11.6%.
Many Wall Street firms believe AI could be a multitrillion-dollar opportunity over the next decade alone. Goldman Sachs forecasts that the technology will add $7 trillion to the global economy within 10 years, whereas consulting firm PwC estimates it will add $15.7 trillion to the global economy by 2030.
If either of those forecasts is in the right ballpark, the iShares Semiconductor ETF will be a great place for investors to put their money. However, if AI fails to live up to the hype, the ETF could underperform because of its high level of exposure to the industry. Therefore, owning shares of this fund as part of a balanced portfolio might be the way to go.
