Since the debut of ChatGPT in November 2022, interest in artificial intelligence, or AI, as an investment opportunity has persisted among investors.
Companies like Nvidia Corp. (ticker: NVDA) have benefited from this trend, with an earnings-fueled rally that briefly propelled the company to a trillion-dollar valuation. Some commentators and market analysts are now referring to this trend as an “AI gold rush,” signifying the level of investment and development in the artificial intelligence sector.
“We’re clearly entering the golden era of AI, with Big Tech making this shift a priority across their ventures,” says Tejas Dessai, research analyst at Global X ETFs. “We expect the AI market to reach over half a trillion dollars in value by 2024 even amid a slowdown in venture capital funding, as organizations across various sectors adopt AI to enhance efficiency, cut costs and enhance customer experiences.”
However, history offers an important lesson for investors attracted by the allure of AI. During the historic gold rushes, the individuals who profited the most weren’t necessarily the miners digging for nuggets, but were often those in the peripheral industries that supported these endeavors. These ranged from merchants selling shovels and pickaxes to businesses providing lodging and sustenance.
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Similarly, the burgeoning AI landscape is not just about companies directly involved in AI development; it also includes a wide range of supporting industries like semiconductors, hardware, cloud computing and data analytics, in addition to companies leveraging AI to improve their business.
“I do not see special risks associated with investing in AI as long as you invest in companies that already have excellent products and are using AI to better their offerings,” says Christopher Manske, founder and president of Manske Wealth Management. “To drive my point home, consider that no one today would cook dinner with firewood and matches when they can just turn a knob on a modern stove — AI represents that level of real progress and the risk is in not investing in it.”
Investors should therefore keep an open mind when looking at AI-themed exchange-traded funds, or ETFs. While these funds may invest in companies that are at the forefront of AI technology, they often include stocks from companies poised to benefit from the AI revolution in an indirect manner.
This can mean companies that provide the hardware and software needed for AI computations, or even traditional businesses that are using AI to fundamentally change the way they operate and deliver value. By diversifying among them with a thematic AI ETF, investors can reduce the chances of a poor stock pick derailing their portfolio.
“We’re in the early stages of the AI cycle, and proper diversification is extremely important, be it across company stages or geographies, because it’s difficult to pick a winner or two this early,” Dessai says. “With a thematic ETF, you’re following an idea as opposed to a complex strategy.”
Here’s a look at six of the best AI ETFs to buy now:
| ETF | Expense ratio |
| Artificial Intelligence & Technology ETF (AIQ) | 0.68% |
| Invesco QQQ Trust Series 1 (QQQ) | 0.2% |
| iShares Robotics and Artificial Intelligence Multisector ETF (IRBO) | 0.47% |
| WisdomTree Artificial Intelligence and Innovation Fund (WTAI) | 0.45% |
| First Trust Nasdaq Artificial Intelligence and Robotics ETF (ROBT) | 0.65% |
| Roundhill Generative AI & Technology ETF (CHAT) | 0.75% |
Artificial Intelligence & Technology ETF (AIQ)
“We’re extremely bullish on the technological paradigm of AI,” Dessai says. “We’re already seeing a flurry of applications emerge across the board, which may drive more spending on software, hardware, processors and storage, which is vital to tech industry growth.” This can be seen in the stellar returns of AIQ, which is up 33% over the one-year period ending Aug. 31.
By tracking the Indxx Artificial Intelligence & Big Data Index, AIQ holds 87 globally diversified stocks with AI involvement, with top holdings currently consisting of Alphabet Inc. (GOOG, GOOGL), Intel Corp. (INTC) and Amazon.com Inc. (AMZN). For investors desiring more of an AI and robotics angle, the firm also offers the Global X Robotics & Artificial Intelligence ETF (BOTZ). AIQ charges a 0.68% expense fee, while BOTZ charges 0.69%.
Invesco QQQ Trust Series 1 (QQQ)
“If you look at the biggest ETFs that purportedly focus on ‘investing in AI,’ their largest holdings are companies that focus on lasers, companies that make semiconductor chips and companies that provide software for automated storage or tracking fleets of vehicles,” Manske says. “My firm does not recommend any AI-focused ETFs because we define the AI space as those publicly traded companies that are quickly adopting AI to improve their offerings.”
Investors who agree with Manske’s contrarian perspective may prefer a more traditional market-cap-weighted ETF like QQQ. By focusing on the Nasdaq-100 index, QQQ still delivers palpable exposure to numerous U.S. tech giant stocks with AI involvement, such as Apple Inc. (AAPL), Microsoft Corp. (MSFT), Nvidia and Meta Platforms Inc. (META). QQQ is also significantly cheaper than all the previous ETFs with an expense ratio of 0.2%.
iShares Robotics and Artificial Intelligence Multisector ETF (IRBO)
The main shortcomings of the Nasdaq-100 index are threefold: a focus on U.S. stocks, a top-heavy weighting to a handful of mega-cap companies, and the inclusion of non-AI and non-technology-sector stocks from sectors like consumer staples. Investors looking to avoid this may prefer an ETF like IRBO, which uses an equal-weighted index to ensure more balanced exposure to mid- and small-cap stocks.
IRBO tracks the NYSE FactSet Global Robotics and Artificial Intelligence Index, which as its name suggests is globally diversified. Among its 113 current holdings, 52.2% come from the U.S., while stocks from China, Japan and Taiwan account for 12.5%, 10.5% and 9%, respectively. As of Aug. 31, the ETF has returned 18% over the trailing year. IRBO charges a 0.47% expense ratio.
[SEE: 5 Best Tech ETFs to Buy in 2023]
WisdomTree Artificial Intelligence and Innovation Fund (WTAI)
“WTAI seeks to track the price and yield performance, before fees and expenses, of the WisdomTree Artificial Intelligence & Innovation Index, which identifies companies that are primarily involved in the investment theme of AI and innovation,” says Christopher Gannatti, global head of research at WisdomTree. “Investors are able to gain targeted exposure to companies offering AI technologies and contributing to the development and deployment of AI innovations.”
This ETF currently has some 77 holdings. The majority of these stocks are large-cap at 62.8%, with a proportional amount qualifying as mid- and small-cap at 24.5% and 12.7%, respectively. Notable top holdings include Nvidia, Alphabet, Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) and Microsoft. The ETF currently charges a 0.45% expense ratio.
First Trust Nasdaq Artificial Intelligence and Robotics ETF (ROBT)
First Trust is a notable provider of rules-based thematic ETFs. Its current AI offering is ROBT, which classifies its holdings as either AI “enablers, engagers or enhancers,” based on the nature and degree of the company’s AI involvement. From there, the top 30 stocks from each category are selected based on their involvement scores to ensure greater exposure to AI-centric companies.
Then, each of the three categories is assigned a weight within ROBT’s portfolio, with engagers receiving the greatest emphasis at 60%, followed by enablers at 25% and enhancers at 15%. Within each category, companies are equally weighted. This results in a portfolio that is significantly less top-heavy and U.S.-centric compared to the previous ETFs. ROBT charges a 0.65% expense ratio.
Roundhill Generative AI & Technology ETF (CHAT)
IBM defines “generative AI” as “deep-learning models that can generate high-quality text, images and other content based on the data they were trained on.” This has captivated investor attention ever since the launch of ChatGPT. For an ETF that explicitly makes generative AI a consideration in its strategy, consider CHAT, which is actively managed and does not track an index.
CHAT’s manager, Roundhill Investments, leverages its proprietary research and stock-picking strategy to create a concentrated portfolio of 34 current holdings it believes to be involved in generative AI as either platforms, infrastructure and enterprise, or consumer software. Notable top holdings include Nvidia, Microsoft, Alphabet, Adobe Inc. (ADBE) and Meta. The ETF charges a 0.75% expense ratio.
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6 of the Best AI ETFs to Buy Now originally appeared on usnews.com
Update 09/21/23: This story was previously published at an earlier date and has been updated with new information.
