1 Stock-Split ETF That Could Turn $500 Per Month Into $1 Million, With Nvidia’s Help

BlackRock oversees more than $10 trillion in client money, making it the largest asset manager in the world. Around $3.3 trillion of that is parked in its iShares subsidiary, which operates over 1,400 exchange-traded funds (ETFs).

The iShares Semiconductor ETF (SOXX 2.68%) is one of those funds, and it’s generating significant returns for investors thanks to its large holdings in leading artificial intelligence (AI) chip stocks like Nvidia and Advanced Micro Devices.

The iShares Semiconductor ETF completed a stock split earlier this year

The iShares ETF delivered a compound annual return of 25.4% over the past decade, comfortably outpacing the S&P 500 index, which gained an average of 13.2% per year over the same period. That propelled the ETF to a share price of around $680 in March, which made it a little expensive for investors with small portfolios.

As a result, iShares conducted a 3-for-1 stock split, which increased the number of shares in circulation threefold, and organically reduced the price per share by two-thirds. Stock splits don’t change the value of the underlying asset, but investors can now buy one share in the ETF for just $231.

Chip companies are at the center of the AI revolution. Without them, tech giants and start-ups alike wouldn’t be able to develop powerful AI models, so this ETF is likely to continue generating positive returns. Here’s how it could turn an investment of $500 per month into $1 million over the long term.

A simple way to invest in the semiconductor industry

The iShares ETF was established in 2001. It manages $14.8 billion on behalf of investors, spread across 30 different chip stocks, but it’s heavily weighted toward its top five holdings, which account for 38% of the entire value of its portfolio:

Data source: iShares. Portfolio weightings are accurate as of Aug. 15, 2024, and are subject to change.

Broadcom is a multifaceted AI company. It makes connectivity and networking equipment for the data center, which is increasingly important for operators running thousands of graphics processors (GPUs) to facilitate AI development. Broadcom also owns Symantec, which is integrating AI into its cybersecurity tools, and VMware, which sells software to help developers distribute their data center infrastructure efficiently.

Nvidia designs the most powerful data center GPUs in the industry, responsible for the most advanced AI models to date. Demand continues to outstrip supply, which is driving a surge in the company’s revenue, and that trend is likely to continue for the foreseeable future.

AMD has become a worthy competitor to Nvidia in the data center space, but it’s also leading the semiconductor market for AI-enabled personal computers. This could be a significant growth driver for the company in the coming years.

Outside its top five holdings, the iShares ETF holds a number of other key chip stocks. Taiwan Semiconductor Manufacturing, for example, manufactures many of the chips designed by Nvidia and AMD. Then there is Micron Technology, which is experiencing growing demand for its memory and storage chips, led by the AI boom.

Turning $500 per month into $1 million

The iShares ETF has generated a compound annual return of 12.1% since it was established in 2001. As mentioned, that annual return accelerated to 25.4% over the last 10 years, and it’s because of the rapid adoption of technologies like smartphones, enterprise software, cloud computing, and AI, which require a growing amount of computing power.

The table highlights the potential returns an investor could earn with $500 per month over 10 years, 20 years, and 30 years, based on three annual growth rates:

Calculations by author.

There’s a good argument that the past 10 years has seen stock market performance that’s unlikely to repeat itself in the future. At some point, the rule of large numbers kicks in to limit future gains. For example, if Nvidia stock gained 25.4% per year for the next 30 years, the company would eventually be valued at $2.7 quadrillion –or 900 times what it’s worth today — which isn’t realistic.

But even if the ETF reverts to its annual return of 12.1%, it could still turn a $500 monthly investment into over $1 million within 30 years.

With that said, AI will likely create substantial value from here, which could result in the ETF outperforming its long-term average return. Nvidia CEO Jensen Huang, for example, thinks data center operators will spend $1 trillion upgrading and expanding their infrastructure over the next five years, and many of the stocks in this ETF will be direct beneficiaries.

Plus, PwC thinks the broad adoption of AI will add a whopping $15.7 trillion to the global economy between now and 2030, which will fuel demand for innovation in the chip space.

Of course, if AI fails to live up to the hype, most of the stocks in the iShares ETF could lose value, which will lead to a period of underperformance. That’s why it’s always a good idea to own this ETF as part of a balanced portfolio that’s less exposed to the success or failure of AI.

Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Applied Materials, Nvidia, Qualcomm, Taiwan Semiconductor Manufacturing, and iShares Trust – iShares Semiconductor ETF. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.