Massive AI Spending Looms: Will Data Center Stocks Thrive?
Late last year, Morgan Stanley forecasted that Amazon, Microsoft, Alphabet, and Meta Platforms could collectively invest $300 billion in data center infrastructure and chips to support their artificial intelligence (AI) goals by 2025. Recent updates from these companies indicate that actual spending may exceed Morgan Stanley’s estimates. A significant portion of this investment is expected to go to hardware leaders like Nvidia (NASDAQ: NVDA), Broadcom (NASDAQ: AVGO), and Advanced Micro Devices (NASDAQ: AMD), which manufacture the advanced chips and networking technologies critical for AI development.
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The iShares Semiconductor ETF (NASDAQ: SOXX) holds a portfolio of 30 leading hardware stocks, including the aforementioned companies. Currently down 21% from its all-time high, the ETF presents a unique opportunity for investors to acquire it at a reduced price amidst anticipated AI hardware spending this year. Here’s why it might be beneficial for investors.
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Investing in AI Hardware: iShares Semiconductor ETF
The iShares Semiconductor ETF focuses exclusively on U.S. companies that design, manufacture, and distribute chips, particularly those benefiting from trends like AI. Their concentrated nature can lead to significant returns, but also risks underperformance if market interest wanes.
This ETF provides substantial exposure to the anticipated boom in AI hardware spending. Though it comprises 30 stocks, its top five positions represent a noteworthy 36.4% of the total portfolio value, featuring major industry players:
|
iShares ETF Portfolio Weighting |
|
|---|---|
|
1. Broadcom |
10.28% |
|
2. Nvidia |
7.32% |
|
3. Qualcomm |
6.46% |
|
4. Texas Instruments |
6.31% |
|
5. Advanced Micro Devices |
6.11% |
Data source: iShares. Portfolio weightings are accurate as of Feb. 27, 2025, and are subject to change.
Nvidia is a leader in supplying advanced graphics processing units (GPUs) required for AI model development. Their fiscal year 2025 results showcased a record $130.5 billion in revenue, a remarkable 114% increase from the previous year. CEO Jensen Huang highlighted that upcoming AI models could need up to 100 times more computing power than their predecessors.
All four major tech firms mentioned—Amazon, Microsoft, Meta, and Alphabet—are significant buyers of Nvidia chips. However, they are also collaborating with Broadcom to develop their own chips. Broadcom stands out as a prominent supplier of AI networking equipment, including swift switches that manage data flow between devices and chips.
Competing with Nvidia, Advanced Micro Devices is entering the data center market with its collection of AI GPUs. The company is currently providing samples of its new MI350 to clients, aiming to rival Nvidia’s latest GB200 chip.
Additionally, AMD leads the market for AI chips in personal computers, a potential growth area as AI models grow efficient enough to operate independently of external data centers. Qualcomm’s Snapdragon chips, utilized in Microsoft’s Surface laptops and Samsung’s smartphones, further enhance their role in the AI landscape.
Beyond its top five holdings, the iShares ETF encompasses other notable AI semiconductor firms such as Micron Technology, which provides memory and storage, and Taiwan Semiconductor Manufacturing, the largest chip manufacturer globally.
Performance Insights: Historical Returns of the iShares ETF
This ETF has dipped nearly 4% in 2025 and is currently 21% lower than its peak reached in mid-2023. Despite these recent declines, the ETF boasts a strong historical performance with a compound annual return of 11.1% since its inception in 2001, surpassing the average annual gain of 8.4% in the S&P 500 during the same period.
In summary, this ETF has weathered various tech booms, including the internet, enterprise software, and cloud computing. The current downturn might represent a strategic buying opportunity for investors, particularly given its positioning for an enduring AI boom.
According to Morgan Stanley, the estimated $300 billion investment in 2025 may only mark the beginning. In early 2024, Huang projected that data center innovation could draw $1 trillion over five years to meet AI demands.
The 30 companies within the iShares ETF stand to benefit substantially from this increased investment, making it a potentially advantageous choice for those aiming to capitalize on the resulting value creation. However, it is essential for investors to incorporate this ETF within a diversified investment strategy. If AI software monetization proves challenging, companies may scale back hardware investments, leading to potential declines in stock performance for leaders like Broadcom, Nvidia, AMD, and others.
Is Now the Right Time to Invest in the iShares Semiconductor ETF?
Before making any investment decisions…
iShares Semiconductor ETF Misses Out on Top 10 Stocks List
The iShares Trust – iShares Semiconductor ETF was notably excluded from a recent selection made by the Motley Fool Stock Advisor analyst team. This list features what they identify as the 10 best stocks for investors right now, which they believe have great potential for sizable returns in the future.
To illustrate the potential impact of these selections, consider the example of Nvidia. When Nvidia was included on this list back on April 15, 2005, an investor who had put in $1,000 would have seen their investment balloon to $765,576 by the time of this report. This highlights the substantial growth opportunities offered by carefully chosen stocks.
The Stock Advisor program provides an accessible path for investors seeking success in the market. Participants receive a clear strategy for building their portfolios, ongoing insights from analysts, and two new stock picks each month. Since its inception in 2002, Stock Advisor has more than quadrupled the returns of the S&P 500 index.* For those interested, the latest top 10 list is available upon joining the Stock Advisor service.
*Stock Advisor returns as of March 3, 2025
The Motley Fool’s board of directors includes notable figures such as John Mackey, former CEO of Whole Foods Market, and Randi Zuckerberg, a former Facebook executive. The firm maintains positions in numerous companies including Advanced Micro Devices, Alphabet, Amazon, Meta Platforms, Microsoft, Nvidia, Qualcomm, Taiwan Semiconductor Manufacturing, Texas Instruments, and the iShares Trust – iShares Semiconductor ETF. Furthermore, The Motley Fool recommends Broadcom and has outlined specific options strategies related to Microsoft. For full disclosures, refer to The Motley Fool’s disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
