1 Unstoppable Semiconductor ETF That Could Turn $200,000 Into $1 Million

artificial intelligence The (AI) revolution would not be possible without it semiconductors. They populate the data centers that developers use to build AI models and power the computers and devices we use to access technology.

Picking winners and losers in the semiconductor space won’t be easy because the pace of innovation is staggering. Nvidia At the beginning of 2023, the market cap was $360 billion, and less than two years later it has now reached $3 trillion! The company currently dominates the AI ​​chip space, but that doesn’t mean it will stay that way forever.

For this reason, investors may want to look at stocks rather than buying individual stocks. iShares Semiconductor ETF (NASDAQ:SOXX) in its place. It keeps stock of all the important AI chips you might want to own and consistently lovers return S&P 500 index.

In fact, here’s how a $200,000 investment can turn into $1 million in the long run — but don’t worry, investors with any starting balance can get a five-fold return from here if this scenario plays out.

Image source: Getty Images.

All leading AI chip stocks in one place

iShares Semiconductor ETF It aims to introduce investors to U.S. companies that design, manufacture and distribute chips, but focuses specifically on those that will benefit from the rise of artificial intelligence.

There are only 30 different stocks in the ETF, and its top five positions account for 37.5% of the total value of the entire portfolio. In other words, it is highly concentrated:

Data source: iShares. Portfolio weightings are accurate as of September 23, 2024 and are subject to change.

Broadcom has a developing semiconductor Business that produces specialized data center chips called AI accelerators. It also creates data center networking hardware, such as switches that regulate how fast data travels from one point to another. In its latest third quarter of fiscal 2024 (ended Aug. 4), Broadcom said its AI accelerator segment grew three-and-a-half times year-over-year, with sales of its Tomahawk 5 and Jericho3-AI switches quadrupling.

Advanced Micro Devices (AMD) is trying to catch up with Nvidia in the data center graphics processor market (GPUs) and is seeing some success thanks to the new MI300 chips. But the company’s Ryzen AI chips have taken a leadership position in the personal computer market, where Nvidia does not operate. They facilitate on-device AI processing, bypassing data centers to create a faster user experience. Ryzen AI hardware can currently be found in millions of computers from manufacturers such as: HPAsus and Lenovo.

As noted, Nvidia has created an incredible amount of value since last year. The company’s data center GPUs are the best GPUs in the industry for developing AI models, and they can’t keep up with demand. Nvidia is preparing to ship Towards the end of this year, next-generation GPUs based on Blackwell architecture will be able to deliver a staggering 30x performance increase over the flagship H100 GPU.

The iShares ETF also holds a number of other notable AI semiconductor stocks beyond its top five positions. These include: Micron TechnologyA leader in memory and storage chips and Taiwan Semiconductor ManufacturingIt produces most of the chips designed by Nvidia and AMD.

We turn $200,000 into $1 million

The iShares ETF has generated a compound annual return of 12.05% since its inception in 2001, easily outpacing the S&P 500’s average annual gain of 8.23% over the same period.

However, in recent years, there has been an explosion in demand for chips thanks to the rapid adoption of technologies. cloud computingenterprise software and artificial intelligence. As a result, the ETF has gained an average annual rate of 25.4% over the past decade, outpacing the S&P 500’s 13.2% annual return over the same time period.

The chart shows how long it might take for the iShares ETF to turn a $200,000 investment into $1 million under three potential scenarios:

1. Scenario 1: The ETF provides an average annual return of 12.05% going forward, in line with its average since 2001.

2. Scenario 2: The ETF returns 18.7% annually going forward (the midpoint of scenarios 1 and 3).

3. Scenario 3: The ETF provides a forward-looking annual return of 25.4%, in line with its 10-year average.

Calculations by author.

The ETF could return five times over the next 15 years even if it returns to its long-term average annual gain of 12.05%. But we’re still in the early stages of the AI ​​revolution, so its performance is likely to get much better, at least for the foreseeable future. Nvidia CEO Jensen Huang He says 1 trillion dollars can be spent data center infrastructure Over the next five years alone, this will be a strong headwind for many stocks in the iShares ETF.

Additionally, PwC thinks that artificial intelligence will add $15.7 trillion to the entire global economy by 2030, so companies will need to invest heavily in artificial intelligence data centers, computers and devices if they want to capture this value.

On the other hand, if AI fails to live up to the hype, the iShares ETF is likely to underperform for a while. As I mentioned, the background extremely concentrated, so investors should only purchase it as part of a balanced portfolio. stocks or ETFs.

Should you invest $1,000 in the iShares Trust – iShares Semiconductor ETF right now?

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Anthony DiPizio It has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, HP, Nvidia, Qualcomm, Taiwan Semiconductor Manufacturing, Texas Instruments, and the iShares Trust-iShares Semiconductor ETF. The Motley Fool recommends Broadcom. The Motley Fool has a feature disclosure policy.