Key Takeaways
- The semiconductor industry is expected to experience significant growth due to the artificial intelligence (AI) boom
- Top AI developers like OpenAI and Anthropic are launching new models that require more computing power and data center capacity
- The iShares Semiconductor ETF is a simple way to invest in the AI semiconductor space without having to pick individual winners and losers
- The ETF has a narrow focus on American companies that design, distribute, and manufacture chips and components, with a top-heavy portfolio that includes Nvidia, AMD, and Micron Technology
- The ETF has delivered a compound annual return of 27.2% over the past decade and could potentially turn an investment of $250,000 into $1 million over the next 10 years
Introduction to the AI Semiconductor Industry
The semiconductor industry is poised for further gains thanks to the artificial intelligence (AI) boom. Top AI developers like OpenAI and Anthropic continue to launch new models, each one being "smarter" and more capable than the last. However, every new model also requires significantly more computing power and data center capacity, driving demand for AI infrastructure, chips, and components. Some of the biggest suppliers of AI infrastructure, chips, and components include Nvidia, Advanced Micro Devices (AMD), and Micron Technology, which have seen their shares surge by an average of 119% in 2025 alone.
The iShares Semiconductor ETF
The iShares Semiconductor ETF is an exchange-traded fund (ETF) that exclusively invests in companies like Nvidia, AMD, Micron, and many of their peers. The fund has a narrow focus on American companies that design, distribute, and manufacture chips and components, with a top-heavy portfolio that includes Nvidia, AMD, and Micron Technology. The ETF’s three largest holdings have a combined weighting of 22.7%, with Nvidia’s graphics processing units (GPUs) being the best chips on the market for developing AI models. AMD is chasing Nvidia in the market for data center chips, while Micron Technology is one of the world’s leading suppliers of memory and storage chips.
Top Holdings and Their Potential
Nvidia’s current Blackwell Ultra lineup was designed to deliver sufficient computing power for the industry’s latest reasoning models, and its stock is still considered cheap despite its 41% gain in 2025. AMD’s latest MI350 Series GPUs have captured some of Nvidia’s top customers, but they still fall modestly short in terms of performance. However, AMD plans to launch its new MI400 GPUs as part of a fully integrated data center rack called Helios, which could deliver 10 times more performance than its MI350 GPUs. Micron Technology is already sold out of its entire 2026 supply of data center memory, including its upcoming HBM4E solution, which is poised to deliver improvements in both capacity and energy efficiency.
Growth Potential and Projections
The iShares Semiconductor ETF is on track to end 2025 with an eye-popping 43% return, and it has delivered a compound annual return of 27.2% over the past decade. Even its more modest average annual gain of 11.8% since its inception in 2001 is still better than the performance of the S&P 500 over the same period. According to Nvidia CEO Jensen Huang, annual spending on AI data center infrastructure and chips could reach $4 trillion by 2030, which could drive the ETF’s compound annual returns to excess of 20% for the foreseeable future. However, it’s essential to temper expectations, as unsustainable growth rates can lead to market corrections.
Turning $250,000 into $1 Million
The iShares ETF could potentially turn an investment of $250,000 into $1 million over the next 10 years, based on different average annual returns. If the ETF delivers an average annual return of 11.8%, it would take 13 years to reach $1 million. However, if it delivers an average annual return of 19.5% or 27.2%, it would take 8 years or 6 years, respectively. While the ETF’s returns may moderate over time, its potential for growth remains significant, driven by the increasing demand for AI infrastructure, chips, and components.
Conclusion and Future Outlook
The iShares Semiconductor ETF offers a simple way to invest in the AI semiconductor space, with a narrow focus on American companies that design, distribute, and manufacture chips and components. The ETF’s top-heavy portfolio includes Nvidia, AMD, and Micron Technology, which are well-positioned to benefit from the growing demand for AI infrastructure, chips, and components. While the ETF’s returns may not be sustainable at current levels, its potential for growth remains significant, driven by the increasing demand for AI infrastructure, chips, and components. As the AI boom continues to drive growth in the semiconductor industry, the iShares Semiconductor ETF is an attractive option for investors looking to capitalize on this trend.