ETFs
1 Stock Split ETF That Could Turn $500 a Month Into $1 Million, With Help From Nvidia
Exchange-traded funds can eliminate the need for investors to pick winners and losers in rapidly evolving areas like artificial intelligence (AI).
The artificial intelligence (AI) industry is still very young, but investors have already observed its incredible potential for value creation. Nvidiafor example, has added $2.8 trillion to its market cap since the beginning of 2023 alone. However, AI is evolving rapidly and it won’t be easy to pick winners and losers in the long run.
Purchasing an exchange-traded fund (ETF) can be a great solution to this challenge for most investors. iShares Broader Technology Sector ETF (IGM -2.22%) holds all the top AI stocks investors could want, so it’s a solid candidate to consider.
Image source: Getty Images.
iShares Expanded Tech Sector ETF Just Completed a Stock Split
The iShares FNB generated a compound annual return of 21.7% over the past five years, far exceeding the average annual return of 15.7% over the past S&P 500 index over the same period.
As a result, the iShares ETF was trading above $510 in March, making it relatively expensive for small investors to buy. To address this issue, iShares executed a 6-for-1 trade stock split which increased the number of shares outstanding sixfold and organically reduced the price per share by a proportional amount.
The stock split didn’t change the ETF’s underlying value, but one share is now trading for less than $100, making it accessible to a broader investor base. AI could give the fund a new lease on life; here’s how it could turn $500 a month into $1 million over the long term.
iShares ETF Holds All the Popular AI Stocks Investors Could Want
Many AI-specific ETFs have emerged in recent years, but they typically hold a limited number of stocks. The iShares ETF, however, boasts a broad portfolio with 281 holdings representing not only AIbut also cloud computing, the company softwarestreaming, cybersecurity and much more.
That being said, the top 10 holdings in the iShares ETF represent 53.7% of its total portfolio value. Most of the AI leaders are in this top 10, giving investors relatively high exposure to this growing sector:
|
1. Apple |
8.62% |
|
2. Microsoft |
8.56% |
|
3. Meta-platforms |
8.51% |
|
4. Nvidia |
8.02% |
|
5. Alphabet Class A |
4.76% |
|
6. Broadcom |
4.46% |
|
7. Alphabet Class C |
3.99% |
|
8. Netflix |
2.37% |
|
9. Advanced microsystems |
2.31% |
|
ten. Adobe |
2.06% |
Data source: iShares. Portfolio weights are accurate as of July 8, 2024 and are subject to change.
Apple has just passed the $3.5 trillion market cap mark, once again becoming the world’s largest company after briefly slipping behind Microsoft. Its new Apple Intelligence software (developed in partnership with OpenAI) will transform the Siri voice assistant and allow users to quickly create content in Notes, Mail, iMessage and more. Apple has 2.2 billion active devices worldwide, which could well become the the largest AI distributor to consumers.
Microsoft In December 2023, OpenAI decided to invest $10 billion in this startup and used the startup’s technology to create its virtual assistant Copilot. Copilot is available in flagship products like Windows and 365 (Word, Excel, PowerPoint, etc.) to help users increase their productivity. Additionally, developers can use OpenAI’s latest GPT-4 models to build their own AI applications via the Microsoft Azure cloud platform.
None of the above would be possible without Nvidia. Its graphics processing units (GPUs) for the data center have trained the world’s most advanced AI models to date – including GPT-4 – and the high demand for these chips has sent the company incomes are skyrocketing.
The iShares ETF owns other popular AI stocks like Oracle And Micron Technologywhich are outside its top 10. Beyond AI, it also has cyber security action Palo Alto Networkscloud software in stock Data dogand social media actions Pinterestwhich are just a few notable names.
Turning $500 a month into $1 million
The iShares ETF has generated a compound annual return of 10.9% since its inception in 2001. But the accelerated adoption of technologies such as enterprise software, cloud computingand AI have generated a much faster compound annual gain of 20.2% over the past 10 years.
The table below shows the potential future returns of investing $500 per month in the iShares ETF over 10, 20, and 30 years:
|
$500 |
10.9% |
$109,351 |
$431,517 |
$1,385,024 |
|
$500 |
15.5% (midpoint) |
$144,201 |
$814,558 |
$3,941,733 |
|
$500 |
20.2% |
$194,180 |
$1,629,866 |
$12,272,092 |
Author’s calculations.
It’s extremely unlikely that the iShares ETF (or any other fund) will sustain a 20.2% return over a 30-year period. The S&P 500, for example, has generated only a 10.4% compound annual return since its inception in 1957, and it has strict criteria to ensure that it only holds the top 500 U.S. stocks. That said, the iShares ETF could turn $500 a month into $1 million over 30 years, even if its average annual return falls back to its long-term average of 10.9%.
There is potential for higher returns if AI meets Wall Street’s predictions. Goldman Sachs PwC estimates that this will add $7 trillion to the global economy over the next decade, while PwC estimates that figure will reach $15.7 trillion by 2030. The ETF’s top holdings, such as Apple, Microsoft and Nvidia, could capture a significant share of that pie.
On the other hand, these stocks are currently trading at a premium because of their AI initiatives. So if the technology doesn’t live up to the hype, they could lose some of their recent gains, triggering a period of underperformance for the iShares ETF. This is a risk that investors should consider, and it’s a good argument for owning the ETF. part of a balanced portfolio.
Randi Zuckerberg, former head of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, 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. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe, Advanced Micro Devices, Alphabet, Apple, Datadog, Goldman Sachs Group, Meta Platforms, Microsoft, Netflix, Nvidia, Oracle, Palo Alto Networks, and Pinterest. 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 position in the stocks mentioned and recommends Adobe, Advanced Micro Devices, Alphabet, Apple, Datadog, Goldman Sachs Group, Meta Platforms, Microsoft, Netflix, Nvidia, Oracle, Palo Alto Networks, and Pinterest. 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. disclosure policy.