Artificial Intelligence on Wall Street: A Look at the Potential of the iShares Expanded Tech Sector ETF

Wall Street analysts forecast economic value in the trillions for Artificial Intelligence (AI) over the next decade. Already, Nvidia has seen an impressive increase in its market capitalization by a substantial $2.1 trillion since the beginning of 2023, as developers increasingly demand the company's AI data center chips. However, past technological revolutions like the internet, cloud computing, and enterprise software have shown that predicting the long-term winners and losers in the AI race can be challenging. Nvidia is already facing growing competition, and in the software realm, some of the best AI models are coming from privately held startups. For most investors, a broad approach to investing in AI might be the best solution. Purchasing an exchange-traded fund (ETF) is an easy way to do this, and the iShares Expanded Tech Sector ETF (NYSEMKT: IGM) currently holds almost every popular AI stock. Over the last decade, the iShares ETF achieved an average annual return of 20.2%, significantly outperforming the S&P 500 Index, which gained an average of 13.2% per year during the same period. A recent 6-to-1 stock split has made the ETF more accessible to retail investors by lowering the price per share to the current $88.93. Should AI meet Wall Street's expectations, this ETF could maintain its recent momentum. Here's the math: A monthly investment of $400 could grow to a million dollars in the long run. The iShares ETF is designed to provide investors with diversified exposure to the technology sector, encompassing both hardware and software companies. It holds 281 different stocks, with the top 10 comprising about 52.3% of the total portfolio value. Among the best-known AI stocks that have grown significantly over the past 18 months and are in the top 10 of the ETF are Apple and Microsoft. These two largest companies globally collaborate with ChatGPT developer OpenAI to develop AI software products. Microsoft's Copilot and Apple's Apple Intelligence underscore this commitment. Nvidia has been instrumental in OpenAI's advances by providing the startup with the first AI supercomputer in 2016. In the last four quarters, Nvidia has reported triple-digit growth in its data center segment. Other attractive stocks in the iShares ETF include Netflix, Salesforce, and Adobe. These companies utilize AI to enhance their already successful businesses. However, if AI does not meet high expectations, the impact on these stocks could be less severe compared to Nvidia. Outside the top 10, the iShares ETF includes other popular technology stocks like Advanced Micro Devices, Oracle, Micron Technology, and Palo Alto Networks. Since its inception in 2001, the iShares ETF has achieved an average annual return of 10.9%. In the last decade, this return has been significantly higher at an average of 20.2% per year, driven by rapid adoption of technologies like cloud computing, enterprise software, smartphones, and AI. Future projections based on monthly investments of $400 in the iShares ETF show potentially high returns over 10, 20, and 30 years. While major tech companies like Nvidia, Microsoft, and Apple are unlikely to sustain 20% growth per year indefinitely, the ETF's annual return, even reverting to 10.9%, could still surpass the million-dollar mark in 30 years. Jensen Huang from Nvidia anticipates spending $1 trillion over the next five years to upgrade and expand data centers to meet the demand from AI developers. PwC estimates that AI will add $15.7 trillion to the global economy by 2030. However, there is also the risk of devaluation in stocks like Nvidia if AI fails to meet high expectations. Therefore, investors should consider the iShares ETF as part of a balanced portfolio.