Nvidia, Microsoft, and Apple Could Help This Action-Split ETF Turn $400 a Month into $1 Million

Wall Street analysts predict that artificial intelligence (AI) will generate trillions of dollars in economic value over the next decade. It has already begun, NvidiaThe market capitalization has increased by a staggering $2.1 trillion since the start of 2023 as developers race to buy the company’s AI data center chips.

But previous technology revolutions like the internet, cloud computing, and enterprise software have taught us that picking long-term winners and losers in the AI ​​race won’t be easy. Nvidia is already facing growing competition, and in the software space, some of the best AI models come from private startups.

A broad approach to AI investing may be the best option for most investors. Buying an ETF is a simple way to do it, and iShares Expanded Tech Sector ETF (IGM -3.11%) currently owns almost all popular AI stocks.

The iShares Expanded Tech Sector ETF just completed a stock split

The iShares ETF has returned 20.2% compound annual return over the past 10 years, significantly outperforming the average annual return of 13.2% in the S&P500 index over the same period.

The ETF was trading at $512 per share in March, making it a bit pricey for investors with small portfolios. To make it more accessible, iShares conducted a 6-for-1 stock split, which increased the number of shares outstanding by six times and lowered the price per share by a proportional amount. Now, investors can buy one share of the ETF for just $88.93 (at the time of this writing).

If AI lives up to Wall Street’s expectations, this ETF could maintain its recent momentum for the foreseeable future. Here’s how it could turn a $400-a-month investment into $1 million over the long term.

Every Leading AI Stock in One ETF

The iShares ETF aims to give investors diversified exposure to the technology sector, including both hardware and software companies. It holds 281 different stocks but is heavily weighted toward the top 10, which make up 52.3% of its total portfolio value.

Several of the most popular AI stocks have cracked the top 10 over the past 18 months thanks to incredible growth:

Data Source: iShares. Portfolio weightings are accurate as of July 29, 2024 and are subject to change.

Apple and Microsoft are the world’s two largest companies, with a combined market capitalization of $6.5 trillion. Both companies have partnered with ChatGPT developer OpenAI to bring AI software products to market. Microsoft used OpenAI models to create its Copilot virtual assistant, and Apple used them to create Apple Intelligence, which will launch this year. With 2.2 billion active devices worldwide, Apple could soon become the largest distributor of AI to consumers.

Without Nvidia, OpenAI models would never have gotten this far. Nvidia CEO Jensen Huang delivered the startup’s first AI supercomputer in 2016, and the companies still have a very close relationship. Nvidia has seen explosive demand for its chips, driving triple-digit percentage growth in data center revenue over the past four quarters.

The iShares ETF is attractive because it also owns stocks like Netflix, Salesforce, and Adobe. All three have incredibly successful businesses already, but they’re using AI to enhance them with new features. However, if the AI ​​doesn’t live up to expectations, these stocks likely won’t suffer as much as, say, Nvidia. As such, this ETF could protect investors from potential downside compared to other ETFs focused solely on AI stocks.

In addition to the top ten, the iShares ETF includes a number of other popular technology stocks, including: Advanced Micro Devices, Oracle, Micron TechnologyAND Palo Alto Networks.

Turning $400 a month into $1 million

The iShares ETF has delivered a compound annual return of 10.9% since its inception in 2001. As I mentioned earlier, that return has been much higher over the past decade, averaging 20.2% per year, thanks to the rapid adoption of technologies like cloud computing, enterprise software, smartphones, and AI.

The table below shows the potential future returns of investing $400 per month in the iShares ETF over 10, 20 and 30 years:

Author’s calculations.

The law of large numbers suggests that tech giants like Nvidia, Microsoft, and Apple are unlikely to grow 20% (or more) per year over the next 20 or 30 years. Because they have dominant holdings in the iShares ETF, the fund will struggle to maintain its 20.2% average annual return over the past decade. For example, the S&P 500 has posted an average annual return of just 10.5% since its inception in 1957.

However, a $400-a-month investment could turn into more than $1 million over a 30-year period, even if the iShares ETF returns an average annual rate of just 10.9%.

There’s potential for bigger long-term gains if AI lives up to expectations. Jensen Huang predicts that $1 trillion will be spent on upgrading and expanding data centers over the next five years to meet demand from AI developers. Additionally, consulting firm PwC believes that AI will add $15.7 trillion to the global economy by 2030. These are just two of many multi-trillion dollar predictions from prominent experts and analysts.

On the other hand, if the AI ​​fails to live up to expectations, stocks like Nvidia could lose a significant amount of value, triggering a period of underperformance for the iShares ETF. Investors need to be mindful of this risk, so it’s best to buy the ETF as part of a balanced portfolio.

Randi Zuckerberg, former chief market development officer and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, chief executive officer at Alphabet, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no holdings in any of the stocks mentioned. The Motley Fool owns shares in and recommends Adobe, Advanced Micro Devices, Alphabet, Apple, Meta Platforms, Microsoft, Netflix, Nvidia, Oracle, Palo Alto Networks, and Salesforce. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 call options on Microsoft and short January 2026 $405 call options on Microsoft. The Motley Fool has a disclosure policy.