BlackRock is responsible for more than $10 trillion in client funds, making it the world's largest asset manager. Around $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 (SOXX -0.85%) is one of those 1,400 funds, and thanks to its top holdings in explosive artificial intelligence (AI) stocks like Nvidia (NVDA -2.09%), it is generating spectacular returns for investors.
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The iShares Semiconductor ETF recently completed a stock split
The iShares Semiconductor ETF has delivered compound annual returns of 30.3% over the last five years, which crushes the 15.1% average yearly gain in the S&P 500 (SNPINDEX: ^GSPC) index over the same period.
As a result, the ETF was trading as high as $680 in March, which made it somewhat expensive for smaller investors. To solve that problem, iShares executed a 3-for-1 stock split which increased the number of shares in circulation threefold and organically reduced the price per share by two-thirds.
Stock splits don't alter the fundamental value of the underlying asset. But investors can now buy a share in the iShares Semiconductor ETF for just $234 (as of this writing), which makes it far more accessible. Its momentum will likely continue thanks to the proliferation of AI.
Here's how it could turn an investment of $400 per month in this ETF into $1 million over the long term.
The world's best chip stocks, 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 wouldn't be possible.
Nvidia's graphics processing units (GPUs) are the most powerful chips in the industry by far, and sales have surged to the point that Nvidia is now the third-largest company in the world, with a valuation of $2.93 trillion. Its market cap was just $360 billion at the start of 2023, so the pace of value creation thanks to AI has been astonishing.
But many of the 30 stocks in the iShares Semiconductor ETF are now contributing to the AI industry, especially its top five holdings, which account for 36.9% of the total value of its portfolio.
|
Stock |
iShares Semiconductor ETF Weighting |
|---|---|
|
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. 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, on the other hand, has developed an entire range of processors designed to bring devices like personal computers and smartphones into the AI era. While AI is processed in the data center today, our devices will soon be capable of handling some of those workloads.
Advanced Micro Devices has emerged as a key 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 (DRAM) and storage (NAND) chips. AI workloads require significantly more of both, whether in the data center or a personal computer, so this company might be on the cusp of a substantial growth phase.
Turning $400 per month into $1 million
Since it was established in 2001, the iShares Semiconductor ETF has delivered a compound annual return of 11.7%. However, the proliferation of technologies like cloud computing and AI has led to a much faster 25.3% average annual return over the past 10 years.
The table below outlines 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 |
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 $400 monthly investments in this ETF will lead to a portfolio worth $1.3 million after 30 years, even if it reverts back to its long-term average return of 11.7% per year.
To be clear, these levels of return are in no way guaranteed, especially over a 30-year timespan. A lot can change as years pass and market interests are in no way static.
However, the rise of AI is expected by many to be a long-term game-changer for the chip sector as well as the entire economy, and Nvidia's incredible rise over the past year might be a mere taste of what's coming. Global consulting firm PwC believes AI will add $15.7 trillion to the global economy by 2030, and Cathie Wood's Ark Investment Management pegs that number at a staggering $200 trillion.
If either of those forecasts is 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 it as part of a balanced portfolio.
