Artificial intelligence (AI) may be the most revolutionary technology in a generation. Depending on which Wall Street forecast you rely on, this could add between $7 trillion and $200 trillion to the global economy over the next decade.
Some companies are already reaping the benefits of this. NvidiaFor example, the company has added a whopping $3.2 trillion to its market capitalization in the past two years alone.
But previous technological revolutions, such as the Internet boom and bust of the late 1990s and early 2000s, have taught us that picking winners and losers won’t be easy. After all, Amazon started selling books online in 1994, but most of its profits now come from cloud computing – 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 when buying an AI-focused Exchange Traded Fund (ETF). The iShares Comprehensive Tech Sector ETF (NYSEMKT:IGM) owns virtually every AI stock an investor could want, and could turn a $250,000 investment into $1 million over the long term.
Image source: Getty Images.
The iShares ETF contains all the popular AI stocks
The goal of the iShares ETF is to provide investors with broad exposure to technology and technology-related companies across hardware, software, interactive media and more. It was founded in 2001, so it has seen several technological developments, including the internet, cloud computing and business software.
The ETF currently holds 278 different stocks, but is relatively concentrated. The top four holdings alone account for 33.1% of the total portfolio value, but they are among the most important players in the AI industry:
|
Stock |
iShares ETF Portfolio Weighting |
|---|---|
|
1. Nvidia |
9.48% |
|
2. Metaplatforms |
8.48% |
|
3. Apple |
7.67% |
|
4. Microsoft |
7.55% |
Data source: iShares. Portfolio weights are accurate as of November 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 exceed supply and the company’s revenue has increased by triple-digit percentages in each of the past five quarters. Nvidia has just started releasing its new Blackwell GPUs, which offer an incredible leap in performance and cost-efficiency, so they should deliver strong revenue growth for the foreseeable future.
Meta and Microsoft are both Nvidia customers. Meta is filling its data centers with GPUs to train its Llama large language models (LLMs), which it uses to create new AI features for its social networks Facebook and Instagram. Microsoft, on the other hand, has created a virtual assistant called Copilot that can generate text, images, and even computer code. Additionally, the Microsoft Azure cloud platform gives developers access to the computing power and LLMs they need to build their own AI software.
Apple is still at the beginning of its AI journey. The company has just started rolling out Apple Intelligence, which is available to owners of the latest iPhones, iPads and Mac computers. It delivers new writing tools that can instantly summarize and generate text, and also introduces new capabilities for the Siri voice assistant thanks to a partnership with OpenAI.
But the iShares ETF owns a number of other popular AI stocks outside the top four. They include Alphabet, Oracle, Advanced micro devices, CrowdStrikeand more.
$250,000 turned into $1 million
The iShares ETF has generated a compound annual return of 10.9% since its inception in 2001, which is far better than the average annual return of 8.2% achieved by the S&P500 index.
However, the iShares ETF’s compound annual return has accelerated to 20.1% over the past decade thanks to the increasing adoption of technologies such as cloud computing, enterprise software and now AI.
The table below shows how long it can take for the ETF to turn a €250,000 investment into €1 million, based on a range of different annual returns:
|
Opening 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 returns above 20% per year over the long term, as the law of large numbers will eventually create headwinds. Nearly 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. Furthermore, Meta already has 3.3 billion daily active users, so the company will eventually hit a growth ceiling unless the world’s population grows significantly.
That said, the iShares ETF could turn $250,000 into $1 million within 14 years, even if its average annual return returns to 10.9%. It could grow faster if the value created by AI actually meets some of the estimates I mentioned at the top, but the reverse is also true: Stocks like Nvidia will severely underperform if AI doesn’t 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.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, a director at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokeswoman for Facebook and sister of Mark Zuckerberg, CEO of Meta Platforms, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no positions in the stocks mentioned. The Motley Fool holds 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 to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
