Apple is still early in its AI journey. It just started rolling out Apple Intelligence, which is available to owners of its latest iPhones, iPads, and Mac computers. It delivers new writing tools that can instantly summarize and generate text, and it also introduces new capabilities to the Siri voice assistant thanks to a partnership with OpenAI.

But the iShares ETF holds a number of other popular AI stocks outside of its top four. They include Alphabet, Oracle, Advanced Micro Devices, CrowdStrike, and more.

The iShares ETF has generated a compound annual return of 10.9% since its inception in 2001, which is much better than the average annual return of 8.2% delivered by the S&P 500 index.

However, the compound annual return in the iShares ETF accelerated to 20.1% over the last 10 years thanks to the growing adoption of technologies like cloud computing, enterprise software, and now, AI.

The below table shows how long it could take the ETF to turn an investment of $250,000 into $1 million based on a range of different annual returns:

Calculations by author.

It would be extremely difficult for any fund to consistently generate a return of more than 20% per year over the long term, because the law of large numbers eventually becomes a headwind. Almost 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 in perpetuity. Additionally, Meta already has 3.3 billion daily active users, so the company will eventually hit a growth ceiling unless the world’s population significantly expands.

With that said, the iShares ETF could turn $250,000 into $1 million within 14 years even if its average annual return reverts back to 10.9%. It could grow more quickly if the value created by AI truly lives up to some of the estimates I mentioned at the top, but the reverse is also true — stocks like Nvidia will heavily underperform if AI fails to 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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*Stock Advisor returns as of November 11, 2024

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has 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 on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

Nvidia, Meta, Apple, and Microsoft Could Help This Magnificent ETF Turn $250,000 Into $1 Million was originally published by The Motley Fool