Semiconductors are pivotal in driving the artificial intelligence (AI) revolution, with companies like Nvidia at the forefront. Nvidia alone has seen its market capitalization surge by $2.8 trillion in the past 18 months, fueled by soaring demand for its data center graphics processing units (GPUs). This value creation in AI is now extending to other chip companies, including Nvidia’s competitors such as Advanced Micro Devices (AMD).
Investors looking to capitalize on this trend can consider investing in a diversified portfolio of chip industry stocks through exchange-traded funds (ETFs) like the iShares Semiconductor ETF (NASDAQ: SOXX). This ETF has delivered a compound annual return of 25.3% over the past decade, outperforming the S&P 500’s annual gain of 12.7% over the same period.
The iShares Semiconductor ETF reached highs of $680 per share in March, which posed a barrier for smaller investors. To address this, iShares implemented a 3-for-1 stock split, increasing the number of shares threefold and reducing the share price to approximately $254 per share.
This development is beneficial as it opens up participation in the ETF to a broader investor base, allowing more investors to benefit from the momentum driven by the AI boom. Over the long term, this ETF has the potential to turn a $200,000 investment into $1 million. However, investors with any starting balance could potentially see a fivefold return if conditions align favorably.
The iShares ETF comprises 30 different semiconductor stocks, with a significant focus on its top holdings, which collectively represent 37.8% of its total portfolio value:
- Broadcom (9.57%)
- Nvidia (8.60%)
- Advanced Micro Devices (AMD) (7.22%)
- Applied Materials (6.59%)
- Qualcomm (5.82%)
Broadcom specializes in networking components for data centers, experiencing a 280% increase in AI-related revenue in its fiscal 2024 second quarter, projecting a record $11 billion from AI for the full fiscal year.
Nvidia leads in producing powerful GPUs essential for AI model development, consistently achieving triple-digit growth in data center revenue over the past year. The company is preparing to launch new GPUs based on its latest Blackwell architecture, such as the GB200, promising five times faster inference speeds than its previous models.
