Artificial intelligence (AI) might be the most revolutionary technology in a generation. Depending on which Wall Street forecast you rely upon, it could add between $7 trillion and $200 trillion to the global economy over the next decade.
Some companies are already reaping the rewards. Nvidia, for example, has added a staggering $3.2 trillion to its market capitalization in the last two years alone.
Start Your Mornings Smarter! Wake up with Breakfast news in your inbox every market day. Sign Up For Free »
But previous tech revolutions, like the dot-com internet boom and bust in the late 1990s and early 2000s, have taught us that picking winners and losers won’t be easy. After all, Amazon started out by selling books online in 1994, but most of its profit now comes from cloud computing instead — a business that didn’t even exist when the company was founded. Who could have predicted that?
Investors don’t have to be expert stock pickers if they buy an AI-focused exchange-traded fund (ETF). The iShares Expanded Tech Sector ETF (NYSEMKT: IGM) owns practically every AI stock an investor could want, and it could turn an investment of $250,000 into $1 million over the long term.
The objective of the iShares ETF is to offer investors broad exposure to technology and technology-related companies spanning hardware, software, interactive media, and more. It was established in 2001 so it has navigated several tech booms including the internet, cloud computing, and enterprise software.
The ETF currently holds 278 different stocks, but it’s relatively concentrated. Its top four positions alone account for 33.1% of the total value of its portfolio, but they are among the key players in the AI industry:
|
Stock |
iShares ETF Portfolio Weighting |
|---|---|
|
1. Nvidia |
9.48% |
|
2. Meta Platforms |
8.48% |
|
3. Apple |
7.67% |
|
4. Microsoft |
7.55% |
Data source: iShares. Portfolio weightings are accurate as of Nov. 12, 2024, and are subject to change.
Nvidia supplies powerful graphics processors (GPUs) for the data center, which are used to develop AI models. Demand continues to outstrip supply, and the company’s revenue has soared by triple-digit percentages in each of the last five quarters. Nvidia just started shipping its new Blackwell GPUs, which offer an incredible leap in performance and cost efficiency, so they should drive strong sales growth for the foreseeable future.
Meta and Microsoft are both customers of Nvidia. Meta fills its data centers with GPUs to train its Llama large language models (LLMs), which it’s using to create new AI features for its Facebook and Instagram social networks. Microsoft, on the other hand, created a virtual assistant called Copilot which can generate text, images, and even computer code. Plus, the Microsoft Azure cloud platform offers developers access to the computing capacity and LLMs they need to build their own AI software.
Apple is still early in its AI journey. It just started rolling out Apple Intelligence, which is available to owners of its latest iPhones, iPads, and Mac computers. It delivers new writing tools that can instantly summarize and generate text, and it also introduces new capabilities to the Siri voice assistant thanks to a partnership with OpenAI.
But the iShares ETF holds a number of other popular AI stocks outside of its top four. They include Alphabet, Oracle, Advanced Micro Devices, CrowdStrike, and more.
The iShares ETF has generated a compound annual return of 10.9% since its inception in 2001, which is much better than the average annual return of 8.2% delivered by the S&P 500 index.
However, the compound annual return in the iShares ETF accelerated to 20.1% over the last 10 years thanks to the growing adoption of technologies like cloud computing, enterprise software, and now, AI.
The below table shows how long it could take the ETF to turn an investment of $250,000 into $1 million based on a range of different annual returns:
|
Starting Balance |
Compound Annual Return |
Time to Reach $1 Million |
|---|---|---|
|
$250,000 |
10.9% |
14 Years |
|
$250,000 |
15.5% (midpoint) |
10 Years |
|
$250,000 |
20.1% |
8 Years |
Calculations by author.
It would be extremely difficult for any fund to consistently generate a return of more than 20% per year over the long term, because the law of large numbers eventually becomes a headwind. Almost half of Nvidia’s revenue comes from just four customers, and it’s unlikely they can spend hundreds of billions of dollars (combined) on AI infrastructure every year in perpetuity. Additionally, Meta already has 3.3 billion daily active users, so the company will eventually hit a growth ceiling unless the world’s population significantly expands.
With that said, the iShares ETF could turn $250,000 into $1 million within 14 years even if its average annual return reverts back to 10.9%. It could grow more quickly if the value created by AI truly lives up to some of the estimates I mentioned at the top, but the reverse is also true — stocks like Nvidia will heavily underperform if AI fails to meet expectations.
That’s why it’s a good idea for investors to own the iShares ETF as part of a balanced portfolio of other funds or individual stocks.
Ever feel like you missed the boat in buying the most successful stocks? Then you’ll want to hear this.
On rare occasions, our expert team of analysts issues a “Double Down” stock recommendation for companies that they think are about to pop. If you’re worried you’ve already missed your chance to invest, now is the best time to buy before it’s too late. And the numbers speak for themselves:
-
Amazon: if you invested $1,000 when we doubled down in 2010, you’d have $23,818!*
-
Apple: if you invested $1,000 when we doubled down in 2008, you’d have $43,221!*
-
Netflix: if you invested $1,000 when we doubled down in 2004, you’d have $451,527!*
Right now, we’re issuing “Double Down” alerts for three incredible companies, and there may not be another chance like this anytime soon.
See 3 “Double Down” stocks »
*Stock Advisor returns as of November 11, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, 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, Alphabet, Amazon, Apple, CrowdStrike, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Fool 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.
Nvidia, Meta, Apple, and Microsoft Could Help This Magnificent ETF Turn $250,000 Into $1 Million was originally published by The Motley Fool
Source link
-
-
-
-
