Nvidia’s GPU Innovation Fuels $1 Trillion AI Infrastructure Boom
Nvidia (NASDAQ: NVDA) first introduced the graphics processing unit (GPU) in 1999, revolutionizing computer graphics for gaming and multimedia. Over time, these GPUs have proven their worth beyond entertainment; their ability to perform many tasks simultaneously makes them perfect for demanding applications like machine learning and artificial intelligence (AI) development. This shift has led Nvidia to create advanced GPU architectures tailored for data centers, positioning the semiconductor industry at the forefront of the AI revolution.
Nvidia CEO Jensen Huang has projected that data center operators will invest $1 trillion in building GPU-based AI infrastructure over the next five years. This represents a significant opportunity not just for Nvidia, but for the entire semiconductor sector.
The iShares Semiconductor ETF (NASDAQ: SOXX) encompasses every major chip stock. This provides investors a diversified way to capitalize on growth in this market. For instance, the ETF could transform a monthly $400 investment into $1 million over the long run.
Image source: Getty Images.
A Fund for Every Top Chip Stock
The iShares Semiconductor ETF invests in U.S. companies responsible for designing, manufacturing, and distributing chips, especially those positioned to benefit from emerging trends like AI. While some ETFs can include hundreds of different stocks, this one focuses on just 30, concentrating on a specific theme.
Nvidia leads the fund, with its top five holdings making up 37.9% of the ETF’s entire portfolio.
|
Stock |
iShares ETF Portfolio Weighting |
|---|---|
|
1. Nvidia |
8.88% |
|
2. Broadcom |
8.60% |
|
3. Advanced Micro Devices |
8.54% |
|
4. Qualcomm |
6.09% |
|
5. Texas Instruments |
5.84% |
Data source: iShares. Portfolio weightings are accurate as of Oct. 14, 2024, and are subject to change.
Nvidia’s market valuation stood at $360 billion at the beginning of 2023. In less than two years, it surged to a remarkable $3.2 trillion, making it the second largest company globally. This growth is backed by impressive revenue increases, particularly from its data center GPU sales.
In the second quarter of fiscal 2025, ending July 28, Nvidia reported $26.3 billion in data center revenue, marking a staggering 154% growth from the previous year. As demand remains high, Nvidia is set to start shipping its new line of GPUs based on the Blackwell architecture, which promises up to 30 times the performance of its H100 GPU. Huang has described the demand for these new products as “insane.”
Broadcom is another key player in the AI data center arena, manufacturing AI accelerators for major clients like Microsoft and Amazon. They also produce advanced Ethernet switches managing data flow between GPUs and other devices.
Advanced Micro Devices (AMD) has become a formidable competitor in the GPU market, planning to release its MI350X data center chip in late 2025, targeting the same market as Nvidia’s Blackwell. Furthermore, AMD creates neural processors for PCs, providing on-device AI processing that enhances user experience, presenting new growth opportunities.
The iShares Semiconductor ETF also includes other notable companies in AI chip production, like Micron Technology, which manufactures memory chips increasingly designed for AI tasks, and Taiwan Semiconductor Manufacturing, responsible for fabricating many GPUs designed by Nvidia and AMD.
Investing Strategy: Growing Your Wealth with $400 Per Month
Since its inception in 2001, the iShares Semiconductor ETF has achieved a compound annual return of 11.6%. In the past decade, that average has jumped to 24.5%, fueled by rapid growth in cloud computing, enterprise software, and AI adoption.
Below is a projection of how a $400 monthly investment could grow over 10, 20, and 30 years at different annual growth rates:
|
Monthly Investment |
Compound Annual Return |
Balance After 10 Years |
Balance After 20 Years |
Balance After 30 Years |
|---|---|---|---|---|
|
$400 |
11.6% |
$91,153 |
$379,042 |
$1,292,289 |
|
$400 |
18.1% (midpoint) |
$135,761 |
$951,779 |
$5,871,080 |
|
$400 |
24.5% |
$206,433 |
$2,535,833 |
$28,871,790 |
Calculations by author.
While it seems unlikely that the iShares Semiconductor ETF will maintain a 24.5% annual return over the next 30 years, even reverting to its historical average of 11.6% could still lead to a $1 million balance after 30 years from a monthly $400 investment. Though nothing is guaranteed, expecting returns at this level could be reasonable for investors.
Moreover, ETFs offer flexibility. As new chip companies rise to prominence, the iShares Semiconductor ETF can adapt its holdings to include these emerging players, potentially enhancing returns.
AI is poised to be transformative for the semiconductor industry. Goldman Sachs estimates that AI technology could contribute $7 trillion to the global economy over the next decade, which could lead to ongoing investments in chips and infrastructure that support new growth phases.
However, the hype surrounding AI does come with inherent risks. Thus, it’s wise for investors to include the iShares Semiconductor ETF within a well-rounded portfolio rather than as a sole investment.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Goldman Sachs Group, Microsoft, Nvidia, Qualcomm, Taiwan Semiconductor Manufacturing, Texas Instruments, and iShares Trust – iShares Semiconductor ETF. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
