During the dot-com bubble, investor attention was focused on internet companies, but today, the hottest investment trend of 2024 is artificial intelligence (AI).
“We believe the AI trend will broaden in scope to encompass additional segments of the market, with new technological advancements, a more stable interest rate environment and the ongoing impact of fiscal stimulus broadening innovation across multiple industries,” says Rene Reyna, head of thematic and specialty product strategy at Invesco.
The biggest parallel to draw here is how enthusiastically companies have embraced AI and promoted it, especially the large caps that make up the S&P 500 index.
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For example, financial data provider FactSet found that from March 15 to May 23 of this year, 199 S&P 500 companies cited the term “AI” during their earnings calls.
Single company standouts here include Meta Platforms Inc. (ticker: META), Nvidia Corp. (NVDA) and Microsoft Corp. (MSFT), which mentioned AI 95, 86 and 74 times, respectively. Technology was a sector standout, with 90% of the reporting companies citing AI in some capacity.
Exactly what was discussed varied, but for Microsoft, FactSet’s transcript assistant tool highlighted cloud revenue growth with its Azure segment, AI assistants such as Copilot, the company’s investment in OpenAI, the licensing of various large language models as a service and generative AI use for LinkedIn content.
Fortunately for retail investors, you don’t have to go analyzing hundreds of earnings calls manually to determine if a company has AI involvement or not. Today, you can easily delegate the work to a thematic exchange-traded fund (ETF) that focuses on AI stocks.
These ETFs trade on an exchange like stocks, hold a diversified basket according to an AI index or their own criteria and manage portfolios at an institutional level. However, you do have to fork over an annual expense ratio to invest in them.
“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,” says Tejas Dessai, assistant vice president and research analyst at Global X ETFs. “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 |
| Invesco AI and Next Gen Software ETF (IGPT) | 0.60% |
| Roundhill Generative AI & Technology ETF (CHAT) | 0.75% |
| Global X Artificial Intelligence & Technology ETF (AIQ) | 0.68% |
| Global X Robotics & Artificial Intelligence ETF (BOTZ) | 0.68% |
| Global X Data Center & Digital Infrastructure ETF (DTCR) | 0.50% |
| REX AI Equity Premium Income ETF (AIPI) | 0.65% |
Invesco AI and Next Gen Software ETF (IGPT)
For a 0.6% expense ratio, IGPT tracks the STOXX World AC NexGen Software Development Index. “The index targets 100 companies from across the globe that generate revenue from various forms of software and AI, such as data storage, robotics, autonomous vehicles, semiconductors and web platforms,” Reyna says. The ETF has accumulated $346 million in assets under management (AUM).
Overall, the portfolio is strongly tilted toward large-cap growth stocks, with an emphasis on the technology sector. Notable top holdings include a mixture of internet companies, semiconductor manufacturers and software developers, including Meta, Alphabet Inc. (GOOGL), Nvidia, Advanced Micro Devices Inc. (AMD), Intel Corp. (INTC), Qualcomm Inc. (QCOM) and Adobe Inc. (ADBE).
Roundhill Generative AI & Technology ETF (CHAT)
AI exposure can come in different forms, but the one investors may be most familiar with is generative AI such as ChatGPT. “Generative AI is the most exciting technological advancement in years, with the ability to transform how we live and work,” says Dave Mazza, CEO at Roundhill Investments. Roundhill’s thematic AI ETF, CHAT explicitly targets generative AI companies using active management.
“The ETF selects stocks using a proprietary methodology that combines a transcript score and sector score to evaluate companies’ relevance to generative AI, factoring in their revenue, profit and R&D investment in AI technologies,” Mazza explains. “Companies are then scored and selected based on their exposure to AI, market capitalization and liquidity.” CHAT charges a 0.75% expense ratio.
Global X Artificial Intelligence & Technology ETF (AIQ)
Launched in May 2018, AIQ has grown to $2 billion in AUM, making it one of the most popular thematic AI ETFs trading right now. The ETF tracks the Indxx Artificial Intelligence & Big Data Index, which currently includes 84 holdings. AIQ is also fairly liquid, with a 0.06% 30-day median bid-ask spread, and is also tax-efficient, with a minimal 0.13% 30-day SEC yield. It charges a 0.68% expense ratio.
“AIQ offers a broad and comprehensive exposure to the entire AI value chain, with exposure that ends up looking quite like the Nasdaq-100 but is more tilted toward technology and mid-cap growth,” Dessai says. For example, common holdings that AIQ shares with the Nasdaq-100 include Nvidia, Broadcom Inc. (AVGO), Meta Platforms, Amazon.com Inc. (AMZN) and Apple Inc. (AAPL).
[5 Best Under-the-Radar AI Stocks]
Global X Robotics & Artificial Intelligence ETF (BOTZ)
U.S. mega-cap tech stocks tend to dominate most AI thematic ETFs, but investors who want to diversify further have options, too. A great example is BOTZ, which tracks the Global Robotics & Artificial Intelligence Thematic Index. This ETF has a higher allocation toward both the industrial and health care sectors at 41.8% and 14%, respectively, and a lower 47.7% weight in U.S. stocks, with 31.3% in Japan.
“We see BOTZ as a more niche play on applied automation,” Dessai says. Nvidia still remains at the top of its portfolio with an 11.6% weight, thanks to its dominance in chipmaking, but the rest of the companies may be less familiar to investors. Nonetheless, firms like Intuitive Surgical Inc. (ISRG) and Keyence Corp. (6861.T) have been pioneers when it comes to applying AI to surgery and manufacturing, respectively.
Global X Data Center & Digital Infrastructure ETF (DTCR)
“While Nvidia and the Magnificent Seven are still very relevant to the AI story, we think investors may also want to consider positioning themselves for the next lap of growth with this theme,” Dessai says. “In particular, we think that data centers, the growing use of alternative energy for AI processing needs as well as areas such as cybersecurity may be worth considering.”
Many data centers in the U.S. hosting the processing power needed for AI applications are owned by real estate investment trusts, or REITS, such as Equinix Inc. (EQIX), American Tower Corp. (AMT), Crown Castle Inc. (CCI) and Digital Realty Trust Inc. (DLR). To buy them all plus 22 more, Global X offers DTCR at a 0.5% expense ratio. As with most REIT ETFs, DTCR pays an above-average 2.1% 30-day SEC yield.
REX AI Equity Premium Income ETF (AIPI)
Many AI companies do not pay out high dividends. This is because most of them are growth stocks that prefer retaining capital to spend on research and development. But, if you wanted AI exposure along with yield, a covered call ETF like AIPI could do the trick. Right now, this ETF is paying a high distribution rate of 34.8%, which assumes the most recently declared payment remained consistent moving forward.
“AIPI’s covered call strategy generates a considerable amount of income by selling call options on each of the individual holdings,” says Scott Acheychek, chief operating officer at REX Financial. “This provides a rare income source in a sector not typically associated with dividends.” Top holdings include Nvidia, Palantir Technologies Inc. (PLTR), CrowdStrike Holdings Inc. (CRWD), ARM Holdings PLC (ARM) and Cisco Systems Inc. (CSCO).
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6 of the Best AI ETFs to Buy Now originally appeared on usnews.com
Update 08/06/24: This story was previously published at an earlier date and has been updated with new information.
