September witnessed a cooling in the stock market, in line with a long-observed anomaly that has seen the market historically dip during this month. However, one sector that continues to defy this sentiment is artificial intelligence, or AI, with key industry players making significant strategic moves.
“The AI space will continue to see strong M&A (mergers and acquisitions) interest and activity as large players, who seek to dominate key areas of the AI value chain, will spend to buy the best technology to fill gaps and solidify their positioning,” says Tejas Dessai, assistant vice president and research analyst at Global X ETFs.
Case in point: Consider Advanced Micro Devices Inc. (ticker: AMD), known for its semiconductor products in the CPU and GPU markets. In a bid to bolster its foothold and capabilities in the AI arena, AMD recently acquired Nod.ai, a leading entity in automation software.
“We’re clearly entering the golden era of AI, with Big Tech making this shift a priority across their ventures,” Dessai says. “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.”
This move by AMD comes in the wake of great success from its rival, Nvidia Corp. (NVDA). Earlier in May, Nvidia released a highly optimistic revenue forecast, which briefly propelled the company to a trillion-dollar valuation, spotlighting the massive potential of the AI market.
“We also expect large cloud, application software and digital advertising platforms to show significant top- and bottom-line impact from AI soon, which should boost growth and profits and keep the AI theme in focus during this upcoming earnings season,” Dessai says.
The actions of these big companies show a clear message to investors: The AI market is not just growing, it’s very competitive. Trying to guess which company will do better than others can be risky. Many times, this kind of guessing leads to big losses instead of big profits.
“However, we also see some risk as AI regulation takes shape, which could momentarily throw the market off course,” Dessai says. “For those reasons, we recommend investors zoom out and take a more comprehensive, passive approach when getting exposure to the space.”
For investors who want to benefit from the growth in AI without the risk of picking individual stocks, there’s a smarter way. Think about adding a thematic exchange-traded fund, or ETF, focused on AI stocks to your investments.
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This approach gives you a chance to benefit from the overall growth in the AI sector without the ups and downs of individual companies, along with the benefits of professional portfolio management.
“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 are six of the best AI ETFs to buy now:
| ETF | Expense Ratio |
| Global X Artificial Intelligence & Technology ETF (AIQ) | 0.68% |
| Global X Robotics & Artificial Intelligence ETF (BOTZ) | 0.69% |
| WisdomTree Artificial Intelligence and Innovation Fund (WTAI) | 0.45% |
| First Trust Nasdaq Artificial Intelligence and Robotics ETF (ROBT) | 0.65% |
| iShares Robotics and Artificial Intelligence Multisector ETF (IRBO) | 0.47% |
| Roundhill Generative AI & Technology ETF (CHAT) | 0.75% |
Global X Artificial Intelligence & Technology ETF (AIQ)
Global X’s main offering in the AI ETF space is AIQ, which tracks 87 global AI-involved companies represented in the Indxx Artificial Intelligence & Big Data Index. “AIQ offers a broad and comprehensive exposure to the entire AI value chain, with exposure that ends up looking quite like the Nasdaq-100 Index but is more tilted toward technology and mid-cap growth,” Dessai says.
The top holdings in AIQ currently include the likes of Nvidia, Alphabet Inc. (GOOG, GOOGL), Intel Corp. (INTC), Meta Platforms Inc. (META) and Amazon.com Inc. (AMZN). About 62.7% of this ETF is held in technology stocks. The ETF is also biased toward the U.S. market, with 66.7% exposure. AIQ charges a 0.68% expense ratio.
Global X Robotics & Artificial Intelligence ETF (BOTZ)
Investors looking to target companies outside of the technology sector that are adopting, deploying and pioneering AI, robotics and automation solutions may prefer BOTZ over AIQ. This ETF tracks the Global Robotics & Artificial Intelligence Thematic Index, which has a greater focus on industrial and health care companies like Intuitive Surgical Inc. (ISRG).
“We see BOTZ as a more niche play on applied automation,” Dessai says. “In addition to the momentum of AI, the theme also benefits from industrial investments supporting broad reshoring of manufacturing across the United States.” Around half of BOTZ’s portfolio is held in U.S. stocks; Japanese names are the next-heaviest weighting with a 28.6% representation in the portfolio. BOTZ charges a 0.69% expense ratio.
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,” 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.”
While being smaller than BOTZ and AIQ with about $140 million in assets under management, or AUM, WTAI undercuts both in terms of fees with a 0.45% expense ratio, or about $45 in annual fees for a $10,000 investment. With WTAI, investors get a portfolio heavy on the U.S. tech sector, which makes up about 74% of the ETF, with top holdings including Nvidia, Meta Platforms, Alphabet and AMD.
[READ: Can AI Pick Stocks? A Look at AI Investing]
First Trust Nasdaq Artificial Intelligence and Robotics ETF (ROBT)
Investors interested in AI investing with a greater emphasis on pure plays may prefer a rules-based ETF like ROBT. This ETF categorizes eligible AI companies as either enablers, engagers or enhancers. The ETF places the highest emphasis on engagers, which it defines as companies that directly “design, create, integrate or deliver robotics and/or AI in the form of products, software or systems.”
The index ROBT tracks gives engagers a 60% weighting, with individual holdings within this category equally weighted. Every quarter, the ETF rebalances to maintain these target allocations, reconstituting its holdings annually to add and drop stocks. The ETF has attracted around $400 million in AUM since inception and currently charges a 0.65% expense ratio.
iShares Robotics and Artificial Intelligence Multisector ETF (IRBO)
A common criticism of market-cap-weighted sector and industry ETFs, such as technology and AI funds, is that their portfolio composition tends to be top-heavy. Because many of the leading AI-involved companies like Alphabet, Meta Platforms and Nvidia trade with a high market capitalization, ETFs that are weighted by market cap tend to inadvertently hold a concentrated portfolio of these select stocks.
For an equally weighted alternative, investors can consider IRBO, which tracks the NYSE FactSet Global Robotics and Artificial Intelligence Index. The 113 companies in this ETF are much more evenly distributed, with no single stock currently accounting for more than 2% of the ETF’s portfolio. It is also less dependent on the U.S., with domestic stocks accounting for just 52% of the portfolio or so. IRBO charges a 0.47% expense ratio.
Roundhill Generative AI & Technology ETF (CHAT)
The pivotal AI technology that catapulted the industry into widespread recognition was generative AI. Popularized by ChatGPT, this type of AI is capable of generating human-like text based on the input it receives. Essentially, you give it a prompt, and it responds with a coherent, contextually appropriate answer, making it seem like you’re actually chatting with a human.
“Generative AI is as transformative as the internet was in 1990s, and CHAT offers dedicated exposure to the companies that are at the forefront of enhancing how we work and live,” says Dave Mazza, chief strategy officer at Roundhill Investments. This actively managed ETF currently holds a concentrated portfolio of 34 global generative-AI-involved stocks for an expense ratio of 0.75%.
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6 of the Best AI ETFs to Buy Now originally appeared on usnews.com
Update 10/19/23: This story was previously published at an earlier date and has been updated with new information.
