In a landscape increasingly shaped by artificial intelligence (AI), executives are showing strong conviction in its transformative power. According to a recent survey by PwC, around 70% of top leaders believe AI will fundamentally change how value is generated within their organizations over the next few years. The potential economic impact is staggering, with forecasts suggesting AI technologies could add a remarkable $15.7 trillion to the global GDP by 2030.
However, as history has shown—particularly during the dot-com boom and bust—navigating new industries like AI can be treacherous. Not every company in the AI space will succeed, making it a daunting task for investors to identify which firms will flourish. A smarter strategy may involve investing in an AI-focused exchange-traded fund (ETF). By offering a diversified portfolio of AI stocks, such funds can mitigate the risks associated with individual stock failures.
Take, for example, the iShares Expanded Tech Sector ETF (NYSEMKT: IGM), which holds an impressive 281 stocks while concentrating heavily on prominent AI leaders. This ETF not only provides a comprehensive avenue to potential AI gains but has also demonstrated robust historical performance.
As of March, the ETF saw its share price climb to over $510, creating barriers for smaller investors. In response, it implemented a 6-for-1 stock split, lowering the price to approximately $92 and making it more accessible to a broader range of investors eager to enter the AI sector.
Central to the ETF’s success are its significant holdings in powerhouse companies like Meta Platforms, Apple, Microsoft, and Nvidia. These tech giants are positioned to drive impressive growth moving forward, potentially turning a sizable initial investment into substantial returns.
The ETF represents a veritable treasure trove of technology stocks, having adapted through multiple technological revolutions—from the internet era to cloud computing. Currently, AI is at the forefront of the tech boom, and the top four holdings alone constitute over 34% of the ETF’s entire portfolio:
- Meta Platforms: 9.01%
- Apple: 8.99%
- Microsoft: 8.36%
- Nvidia: 7.94%
Meta, for one, is not merely a social media giant. It has developed Llama, a leading open-source language model that underpins various AI features across its platforms, including advanced customer service capabilities for businesses.
Apple is also making strides, partnering with OpenAI to introduce Apple Intelligence on its upcoming iOS 18, enhancing the functionality of devices for approximately 2.2 billion active users.
Microsoft’s multifaceted approach includes incorporating AI through its software suite with tools like Copilot, further solidifying its role in shaping business landscapes through AI integration.
Nvidia, with its cutting-edge graphics processing units (GPUs), stands as a cornerstone for AI development, fueling innovations across the board as demand for its technology skyrockets.
In addition to these industry leaders, the ETF is continually expanding its reach, holding stakes in other key players in the AI space, including Alphabet (notably Google), Oracle, and AMD, while also embracing a variety of technology companies utilizing AI to streamline their core operations.
To illustrate the potential of this ETF, consider the opportunity of turning a $200,000 investment into $1 million over time. The average annual returns over the ETF’s entire history hover around 10.9%, but if it maintains the accelerated 20.2% return witnessed over the last decade, that impressive leap could be achieved in just nine years.
Here’s a breakdown of the timeline based on varying returns:
| Starting Balance | Compound Annual Return | Time to Reach $1 Million |
|---|---|---|
| $200,000 | 10.9% | 16 years |
| $200,000 | 15.5% | 12 years |
| $200,000 | 20.2% | 9 years |
While maintaining a return exceeding 20% sustainably may be challenging—especially given the considerable market caps of the top stocks—investors could still realize substantial gains over the long haul as AI progresses.
Conversely, if the anticipated AI revolution falters or fails to meet expectations, even major companies like Meta, Apple, Microsoft, and Nvidia could suffer setbacks, impacting overall ETF performance. This reality underscores the advantage of holding such a diversified investment in a balanced portfolio.
Before making a decision on investing in the iShares Expanded Tech Sector ETF, it’s worth considering expert advice. Recently, The Motley Fool’s Stock Advisor identified a set of ten alternative stocks that they believe hold greater promise for upcoming growth, positioning them as potentially more lucrative investments.
By leveraging the inherent strengths of the iShares ETF and exploring other targeted investment opportunities, savvy investors can craft a portfolio poised to capitalize on the ongoing technological evolution catalyzed by AI. Whether starting with $1,000 or a more substantial investment, being informed, strategic, and flexible will prove invaluable in navigating this dynamic financial landscape.