Artificial intelligence (AI) could be probably the most revolutionary technology in a generation. Depending on which Wall Street forecast you depend upon, it could add between $7 trillion and $200 trillion to the worldwide economy over the following decade.
Some corporations are already reaping the rewards. Nvidia, for instance, has added a staggering $3.2 trillion to its market capitalization within the last two years alone.
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But previous tech revolutions, just like the dot-com web boom and bust within the late Nineteen Nineties and early 2000s, have taught us that picking winners and losers won’t be easy. In spite of everything, Amazon started off by selling books online in 1994, but most of its profit now comes from cloud computing as a substitute — a business that did not even exist when the corporate was founded. Who could have predicted that?
Investors do not have to be expert stock pickers in the event that 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 run.
Image source: Getty Images.
The target of the iShares ETF is to supply investors broad exposure to technology and technology-related corporations spanning hardware, software, interactive media, and more. It was established in 2001 so it has navigated several tech booms including the web, cloud computing, and enterprise software.
The ETF currently holds 278 different stocks, nevertheless it’s relatively concentrated. Its top 4 positions alone account for 33.1% of the full value of its portfolio, but they’re amongst the important thing players within 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 alter.
Nvidia supplies powerful graphics processors (GPUs) for the info center, that are used to develop AI models. Demand continues to outstrip supply, and the corporate’s revenue has soared by triple-digit percentages in each of the last five quarters. Nvidia just began shipping its latest Blackwell GPUs, which provide an incredible leap in performance and price efficiency, in order that they should drive strong sales growth for the foreseeable future.
Meta and Microsoft are each customers of Nvidia. Meta fills its data centers with GPUs to coach its Llama large language models (LLMs), which it’s using to create latest AI features for its Facebook and Instagram social networks. Microsoft, however, created a virtual assistant called Copilot which might generate text, images, and even computer code. Plus, the Microsoft Azure cloud platform offers developers access to the computing capability and LLMs they should construct their very own AI software.
Apple remains to be early in its AI journey. It just began rolling out Apple Intelligence, which is obtainable to owners of its latest iPhones, iPads, and Mac computers. It delivers latest writing tools that may immediately summarize and generate text, and it also introduces latest capabilities to the Siri voice assistant due to a partnership with OpenAI.
However the iShares ETF holds a lot of other popular AI stocks outside of its top 4. 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 a lot better than the typical annual return of 8.2% delivered by the S&P 500 index.
Nevertheless, the compound annual return within the iShares ETF accelerated to twenty.1% during the last 10 years due 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 show an investment of $250,000 into $1 million based on a variety of various 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 creator.
It will be extremely difficult for any fund to consistently generate a return of greater than 20% per yr over the long run, since the law of huge numbers eventually becomes a headwind. Almost half of Nvidia’s revenue comes from just 4 customers, and it’s unlikely they’ll spend lots of of billions of dollars (combined) on AI infrastructure every yr in perpetuity. Moreover, Meta already has 3.3 billion every day lively users, so the corporate 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 inside 14 years even when its average annual return reverts back to 10.9%. It could grow more quickly if the worth created by AI truly lives as much as a few of the estimates I discussed at the highest, however the reverse can also be true — stocks like Nvidia will heavily underperform if AI fails to fulfill expectations.
That is why it’s a very good idea for investors to own the iShares ETF as a part of a balanced portfolio of other funds or individual stocks.
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At once, we’re issuing “Double Down” alerts for 3 incredible corporations, and there might not be one other likelihood like this anytime soon.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Idiot’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 Idiot’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Idiot has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, CrowdStrike, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Idiot recommends the next options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure policy.