AI Boom: Unlocking Potential with Semiconductor Investments
Artificial intelligence (AI) stands as a transformative technology for this generation. Depending on the forecast from various Wall Street firms, AI may contribute anywhere from $7 trillion (Goldman Sachs) to $200 trillion (Ark Investment Management) to the global economy in the next decade.
Before realizing this growth, strong infrastructure investment is necessary. Nvidia (NASDAQ: NVDA) CEO Jensen Huang states that the tech industry must invest at least $1 trillion in data center infrastructure over the next five years to support the demand for AI development. This investment spans chips, networking equipment, and other components, revealing significant opportunities for the semiconductor sector.
For those looking to navigate hardware booms, the iShares Semiconductor ETF (NASDAQ: SOXX) has shown remarkable performance, boasting a 794% return over the past decade. Here’s how an initial investment of $250,000 could grow to $1 million in ten years.
The iShares Semiconductor ETF focuses on companies that design, manufacture, and distribute chips, particularly those benefiting from trends like AI. While ETFs can typically hold many stocks, this one contains just 30, leading to a concentrated investment risk. Notably, the top five stocks constitute 39% of the portfolio:
|
Stock |
iShares ETF Portfolio Weighting |
|---|---|
|
1. Nvidia |
10.48% |
|
2. Broadcom |
8.59% |
|
3. Advanced Micro Devices |
7.90% |
|
4. Texas Instruments |
6.16% |
|
5. Qualcomm |
5.91% |
Data source: iShares. Portfolio weightings are accurate as of Nov. 21, 2024 and are subject to change.
Nvidia leads with its highly demanded graphics processing units (GPUs) for data centers. The company recorded $30.8 billion in data center revenue for its recent fiscal 2025 third quarter (ended Oct. 27), reflecting an impressive 112% year-over-year increase. With the introduction of new Blackwell GPUs, Nvidia is scaling up shipments, responding to “staggering” demand, according to Huang.
Broadcom produces AI accelerators and supplies essential data center components. The company reported a threefold increase in AI accelerator sales during its fiscal 2024 third quarter (ending Aug. 4), while sales of its high-speed switches surged fourfold.
Advanced Micro Devices (AMD) poses a growing challenge to Nvidia in the data center market. Its new GPUs offer performance and cost advantages, with a competitive lineup set to launch next year. Furthermore, AMD is a key supplier of AI chips for PCs, which may boost long-term growth.
The ETF’s portfolio also includes significant players in the chip industry, such as Micron Technology and Taiwan Semiconductor Manufacturing, crucial to AI’s advancement.
Image source: Getty Images.
How to Turn $250,000 into $1 Million
The iShares Semiconductor ETF has achieved a total return of 1,170% since its inception in 2001, translating to an 11.6% compound annual return, significantly exceeding the S&P 500’s average annual gain of 8.2% during the same period.
The ETF’s performance has notably accelerated over the last decade, delivering a 24.5% compound annual return. Tech giants previously focused on building data centers for cloud services, while the boom in smartphones and laptops further fueled chip demand.
The following table outlines how long it could take for a $250,000 investment in the iShares ETF to become $1 million under varying performance scenarios:
|
Starting Balance |
Compound Annual Return |
Time to Reach $1 Million |
|---|---|---|
|
$250,000 |
11.6% |
13 Years |
|
$250,000 |
18.1% (midpoint) |
9 Years |
|
$250,000 |
24.5% |
7 Years |
Calculations and chart by author.
If the iShares ETF can sustain its recent annual return of 24.5%, investors could realize a substantial gain within a decade. Even reverting to its long-term average of 11.6% growth could lead to significant returns over 13 years.
However, maintaining returns above 20% may prove challenging, as Nvidia would require substantial market growth to reach a $21 trillion valuation in ten years, especially with Huang’s projected $1 trillion spending on AI data centers in the near future.
That said, the AI sector is still developing. Nvidia and AMD continue to invest in software alongside their chips, positioning themselves to harness growth driven by those ambitious Wall Street forecasts.
The potential for innovation within the AI semiconductor space remains high, making the iShares ETF a promising long-term investment. Nonetheless, integrating it into a diversified portfolio is prudent, in case the anticipated growth underwhelms.
Before considering an investment in iShares Semiconductor ETF, it’s essential to evaluate:
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Take note of Nvidia’s past performance. If you had invested $1,000 when it first appeared on the recommendation list on April 15, 2005, your investment would have grown to $833,545!*
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Goldman Sachs Group, Nvidia, Qualcomm, Taiwan Semiconductor Manufacturing, Texas Instruments, and iShares Trust – iShares Semiconductor ETF. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
