As 2023 nears its end, the technology sector continues to be dominated by the rapid advancements and intense competition within the artificial intelligence, or AI, industry.
One of the recent examples of this trend has been the impressive performance of Advanced Micro Devices Inc. (ticker: AMD). The company saw its shares soar after announcing the launch of a new graphics processor called the Instinct MI300X, aimed at challenging Nvidia Corp. (NVDA).
So far, Nvidia has been the frontrunner in the AI chip market, but AMD’s new chip has both Microsoft Corp. (MSFT) and Meta Platforms Inc. (META) committed to using it.
This competitive scenario is a vivid illustration of the AI industry’s dynamic, marked by mega-cap tech stocks aggressively pursuing acquisitions and investing heavily in research and development.
“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,” says Tejas Dessai, assistant vice president and research analyst at Global X ETFs.
In the long term, the search for more powerful and cost-effective alternatives by cloud providers and big technology companies alike may continue to intensify the competition. It could also draw the scrutiny of antitrust regulators like the U.S. Federal Trade Commission, which is already probing Microsoft’s involvement with ChatGPT-maker OpenAI.
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“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.”
The high-stakes competitive and regulatory environment could make it difficult to predict which companies will emerge as growth leaders in the future.
To mitigate this risk, investors can opt to diversify a potential AI investment by using an exchange-traded fund, or ETF, that holds a broad basket of AI industry stocks.
“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:
| AI ETF | Expense Ratio |
| Global X Artificial Intelligence & Technology ETF (AIQ) | 0.68% |
| Global X Robotics & Artificial Intelligence ETF (BOTZ) | 0.69% |
| Roundhill Generative AI & Technology ETF (CHAT) | 0.75% |
| ARK Autonomous Technology & Robotics ETF (ARKQ) | 0.75% |
| First Trust Nasdaq Artificial Intelligence and Robotics ETF (ROBT) | 0.65% |
| iShares Robotics and Artificial Intelligence Multisector ETF (IRBO) | 0.47% |
Global X Artificial Intelligence & Technology ETF (AIQ)
Global X’s flagship thematic ETF offering in the AI industry is AIQ, which has attracted around $815 million in assets under management, or AUM, since its inception in May 2018. This ETF tracks the Indxx Artificial Intelligence & Big Data Index, which currently comprises 87 holdings with a significant tilt toward the U.S. technology sector.
“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. Top holdings in this ETF currently include Intel Corp. (INTC), Adobe Inc. (ADBE), International Business Machines Corp. (IBM), Amazon.com Inc. (AMZN), Meta and Alphabet Inc. (GOOG, GOOGL). AIQ charges a 0.68% expense ratio.
Global X Robotics & Artificial Intelligence ETF (BOTZ)
Global X’s alternative offering in the AI space is BOTZ, which tracks the Indxx Global Robotics & Artificial Intelligence Thematic Index. Unlike AIQ, this ETF has more of a focus on the global industrial and health care companies that are pioneering AI and robotics integration and deployment in everyday operations. It is more popular than AIQ, having attracted around $2.3 billion in AUM.
“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.” The current top holding in this ETF is Nvidia at around 14.3%, followed by Intuitive Surgical Inc. (ISRG) at 9.9%. BOTZ charges a 0.69% expense ratio.
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Roundhill Generative AI & Technology ETF (CHAT)
For a targeted focus on the type of AI most familiar to everyday consumers, investors can buy CHAT, which has a focus on generative AI. This AI niche includes tools like OpenAI’s ChatGPT, Google’s Bard and Elon Musk’s Grok, which all use machine learning to generate human-like text responses. Unlike the previous ETFs, CHAT is actively managed, meaning that its managers select stocks instead of following an index.
“Generative AI is as transformative as the internet was in the 1990s, and CHAT offers dedicated exposure to the companies that are at the forefront of enhancing how we work and live,” says David Mazza, chief strategy officer at Roundhill Investments. Right now, the ETF has a fairly concentrated portfolio of 36 holdings for which it charges a 0.75% expense ratio.
ARK Autonomous Technology & Robotics ETF (ARKQ)
Investors looking for more actively managed, AI-themed ETFs can also consider ARKQ, which is managed by famous fund manager Cathie Wood. This growth-focused ETF focuses on companies that either produce or harness AI and automation, such as in robotics, autonomous transport, manufacturing and materials engineering. Investors can expect a 0.75% expense ratio.
Being an actively managed ETF, ARKQ’s holdings can change as decided by Wood and her team’s ongoing research. The ETF is not bound to an index and is free to add, drop and re-weight holdings on a discretionary basis. As of Nov. 31, 2023, ARKQ is up 14.6% this year. However, investors should be aware of heavy volatility and the potential for large drawdowns — the ETF fell by 46.7% in 2022 alone.
First Trust Nasdaq Artificial Intelligence and Robotics ETF (ROBT)
For a more fundamentals-based approach to AI investing, investors can buy ROBT, which deploys a complex rules-based strategy via the Nasdaq CTA Artificial Intelligence and Robotics Index. This ETF categorizes its holdings as either AI enablers, engagers or enhancers, referring to companies that either develop, design or provide value-added services and products in the AI ecosystem.
Within each category, eligible companies are scored based on their degree of involvement, with the top 30 in each category selected. AI engagers receive a 60% weighting in ROBT due to their higher pure-play AI involvement, followed by 25% for enablers and 15% for engagers. Within each category, stocks are weighted equally. ROBT charges a 0.65% expense ratio.
iShares Robotics and Artificial Intelligence Multisector ETF (IRBO)
AI ETF investors who prioritize lower fees and higher diversification above all may prefer IRBO. This ETF tracks the NYSE FactSet Global Robotics and Artificial Intelligence Index and charges a 0.47% expense ratio, far lower than the previous options. Its index is also fairly diversified with 112 equally weighted holdings.
Whereas some of the previous ETFs have their top holdings dominated by mega-caps like Nvidia, Microsoft and Alphabet, IRBO’s composition is much more even. Right now, the tech sector only accounts for about 58% of its holdings, with U.S. stocks representing about 54%. For a cheaper, more global AI investment with more emphasis on smaller companies, IRBO is ideal.
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6 of the Best AI ETFs to Buy Now originally appeared on usnews.com
Update 12/12/23: This story was previously published at an earlier date and has been updated with new information.
