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Picking the individual winners of the burgeoning artificial intelligence (AI) race is no simple task. But one exchange-traded fund (ETF) that provides investors with exposure to a basket of AI stocks could be the solution.
While many investors struck gold by purchasing shares of NVDIA ( NASDAQ: NVDA ) before the chipmaker's stock took off last year, the AI-adjacent company is more of the exception than the rule.
Pure play AI companies, on the other hand, have had less predictable successes, with some like C3.ai ( NYSE: AI ) seeing precipitous rises and falls. C3.ai, which produces AI applications for other enterprises, saw its stock surge to $161 per share by late 2020. At the time of writing, shares of the company are now trading for $28.96.
Are AI ETFs the Answer?
Forecasts suggest that the global AI market could increase exponentially by the early part of the next decade. By some analysts' estimates, that growth could be as much as 300 times its 2022 valuation of $39 billion, which would translate to an astounding $1.3 trillion by 2032.
But how do investors identify the likely winners? Rather than picking one or two companies operating in the AI space and simply wishing for the best, ETFs with holdings spread across all facets of the AI industry allow investors to gain exposure to the trend without overexposing themselves to any individual holding.
In this way, not only are these ETFs providing broad exposure to AI with companies offering varying levels of involvement to the technology, but in doing so, these funds are simultaneously reducing overall risk exposure.
And just as ETFs go, the options for ones leveraged to the AI industry are bountiful. However, just like the stocks they hold, not all ETFs are created equally.
High Growth + Big Tech + AI
There are no fewer than 38 AI-themed ETFs currently trading on the major exchanges in the U.S. Some offer equal weighting, some prefer heavier allocations to the Magnificent Seven stocks. Some are actively managed with portfolio positions constantly shuffled.
They vary considerably by size, too, with some having assets under management (AUM) as low as $532,360 and others reaching as high as $2.72 billion.
But when it comes to finding a fund with the best combination of high growth potential, Big Tech names, diverse AI industry exposure, significant AUM coupled with a modest expense ratio, one ETF in particular takes the cake.
Global X Has the Solution
Enter the Global X Artificial Intelligence & Technology ETF ( NASDAQ: AIQ ), which has posted an eye-catching 138% gain since its inception in May 2018 and has gained over 17% so far in 2024. According to Global X's website, the ETF has net assets of $2.08 billion and a total expense ratio of 0.68%.
And while its size and per share appreciation have been impressive so far, it is the fund's holdings that should garner a lot of attention. By industry, AIQ spans packaged software, semiconductors, internet software and services, information technology services, telecommunications equipment, internet retail, and industrial conglomerates.
That breadth is expansive, but looking at the names among its top weighted holdings provides more insight into why this ETF is an AI powerhouse:
- NVIDIA Corp. ( NASDAQ: NVDA ), 5.53%
- Netflix Inc. ( NASDAQ: NFLX ), 3.65%
- Broadcom Inc. ( NASDAQ: AVGO ) 3.52%
- Meta Platforms Inc. ( NASDAQ: META ), 3.51%
- Qualcomm Inc. ( NASDAQ: QCOM ), 3.47%
- Oracle Corp. ( NYSE: ORCL ), 3.38%
- Alphabet Inc. ( NASDAQ: GOOGL ), 3.32%
- Amazon.com Inc. ( NASDAQ: AMZN ), 3.31%
- Microsoft Corp. ( NASDAQ: MSFT ), 3.00%
- Apple Inc. ( NASDAQ: AAPL ), 2.89%
- International Business Machines Corp. ( NYSE: IBM ), 2.66%
- Alibaba Group Holding Ltd. ( NYSE: BABA ), 2.60%
- Tesla Inc. ( NASDAQ: TSLA ), 2.54%
- Adobe Inc. ( NASDAQ: ADBE ), 2.49%
- Salesforce Inc. ( NYSE: CRM ), 2.48%
- Uber Technologies Inc. ( NYSE: UBER ), 2.33%
Of course, those are not all of AIQ's holdings, but they are the big names with some of the heaviest weightings. And looking at that list, you can see why the AI ETF was capable of producing such enormous gains for shareholders since it debuted in 2018.
Bottom Line
As AI expands out of its earliest phase, when it was constricted to pure play stocks, cloud services, and data centers, the technology is now finding its way into streaming services (Netflix), e-commerce (Alibaba), customer relationship management (Salesforce), and numerous other facets of the economy.
Rather than hoping any one of the aforementioned companies emerges as the biggest winner of the next phase of AI implementation, investing in a fund like the Global X Artificial Intelligence & Technology ETF can provide investors with the best of broad exposure and reduced risk.
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