1 Stock-Split ETF That Could Turn $500 Per Month Into $1 Million, With Help From Nvidia, Microsoft, and Apple

Exchange-traded funds (ETFs) are a great way for investors to buy an entire portfolio of stocks without the challenge of picking individual winners and losers. ETFs usually represent a specific sector or theme in the stock market, and they are typically actively managed, which means a team of experts will adjust the portfolio as necessary.

The iShares Expanded Tech Sector ETF (IGM -0.29%) manages a $4.3 billion portfolio filled with the world's leading technology stocks, including those driving the artificial intelligence (AI) boom.

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The iShares Expanded Tech Sector (IGM) ETF just completed a stock split

The IGM ETF has generated a compound annual return of 19.7% over the last 10 years, which crushes the 12.8% annual return of the S&P 500 index. It's also better than the 18.6% annual gain in the Nasdaq-100 technology index.

The ETF soared as high as $512 per share in March, which is a large outlay for most retail investors. To solve that problem, iShares executed a 6-for-1 stock split, which increased the number of shares in circulation sixfold and reduced the price per share by a proportional amount (to around $85 as of this writing).

The split doesn't change the value of the ETF or any of its underlying holdings, but it does make it accessible to a wider investor base. That spells opportunity, because IGM's momentum will likely continue thanks to tailwinds like AI. Here's how it could turn an investment of $500 per month into $1 million over the long term, thanks to top holdings like Nvidia, Microsoft, and Apple.

The world's top tech stocks, all in one ETF

The technology sector grows broader each year thanks to innovative companies digitizing our economy. Smartphones, semiconductors, cloud computing, streaming, cybersecurity, software, and AI are just a few subsegments under the tech umbrella.

AI is particularly important right now because of its potential to make individuals and businesses more productive. AI chatbots like ChatGPT, Claude, and Gemini can generate text content, images, videos, and even computer code. The data center and semiconductor hardware underpinning those applications are also driving a flurry of innovation. All up, Wall Street thinks the AI industry could add somewhere between $7 trillion and $200 trillion to the global economy within a decade.

The IGM ETF is a great bet if those projections prove accurate. It holds 287 different tech stocks, but it's heavily weighted toward its top five positions, which account for 40.3% of the total value of its portfolio:

Data source: iShares. Portfolio weightings are accurate as of April 12, 2024, and are subject to change.

With 2.2 billion active devices worldwide, Apple could become more central to how users access AI. The company is developing its own AI chips for the iPhone, and it's also in talks with AI leaders like Alphabet's Google and OpenAI to make their chatbots the default option on each of its devices. Microsoft, on the other hand, is already at the front of the AI pack thanks to its $10 billion investment in OpenAI last year.

Facebook and Instagram parent Meta Platforms also use AI in several ways. The technology powers its content recommendation engine to feed users more of the posts they enjoy viewing, and it also helps businesses craft more engaging ads. Plus, Meta continues to develop one of the world's largest open-source large language models (LLMs) called Llama, which could lead to several exciting new features on Facebook and Instagram in the future.

Nvidia needs little introduction. It makes the most powerful data center chips for AI workloads, and it's now the third-largest company in the world. Alphabet is also making strides in AI, with its latest Gemini models outperforming OpenAI's GPT-4 models by most benchmarks.

Outside of the IGM ETF's top five holdings, it owns a stake in a number of other exciting tech companies like Netflix, Advanced Micro Devices, Oracle, and Micron Technology.

Turning $500 per month into $1 million

The IGM ETF has delivered a compound annual return of 10.6% since it was established in 2001. The proliferation of technologies like the smartphone, cloud computing, and AI have driven a much stronger 19.7% annual return over the last 10 years.

The table below shows the potential returns an investor could earn by investing $500 in the ETF every month over 10 years, 20 years, and 30 years under three scenarios:

1. The ETF continues to return 10.6% each year over the long term.
2. The ETF delivers an average annual gain of 15.2% (midpoint of scenarios 1 and 3).
3. The ETF maintains its 10-year average annual return of 19.7%.

Calculations by author.

A monthly investment of $500 for 30 years would lead to a balance of almost $1.3 million, even with an average annual return of just 10.6%. Considering the AI industry is still in its infancy -- with trillions of dollars in estimated potential yet to be unlocked -- there is a good possibility the IGM ETF will deliver a long-term average annual return more reflective of scenarios 2 and 3.

However, no investment is risk-free, not even an ETF with 287 different holdings. If AI fails to live up to the hype, many of the stocks in IGM's portfolio could deliver negative returns for a period of time, which will drag down the overall performance of the ETF. Therefore, it's a good idea to own this ETF as part of a balanced portfolio.