Nvidia investors certainly scored this year with huge gains on the S&P 500 stock. But some AI ETF investors own stakes in two stocks doing even better.
Two stocks in the $700 million-in-assets Global X Artificial Intelligence & Technology ETF, IonQ and Super Micro Computer, are up more than 250% this year. That's sharply higher than the S&P 500's 18.5% rise, which is almost entirely powered by 2023's interest in generative AI like Chat GPT. But they're also topping the 242% gain by everyone's favorite AI stock: Nvidia.
AI stocks are driving the market. "One might think that the story of 2023 for ... stocks was all about the Fed, interest rates, and corporate earnings," said Nicholas Colas of DataTrek Research. But "Gen AI did sort of save the stock market." But how to pick the winners?
Do You Need To Focus On AI With ETFs?
Some investors might figure simply owning the Nasdaq 100, with an ETF like Invesco QQQ Trust, is a sufficient AI bet.
"Invesco QQQ provides exposure to many of the megacap yet innovative companies tied to AI developments, including Amazon.com, Microsoft and Nvidia," said Todd Rosenbluth, head of research at VettaFi. "For many it can be an easy way to tap into the potential of AI."
More than 70% of the QQQ is weighted in just six companies with heavy AI exposures, also including Alphabet, Adobe and Meta Platforms.
But QQQ is also exposed to unrelated companies. And that's why "there are ETFs that provide more targeted exposure, where revenues from AI is a critical factor in security inclusion," Rosenbluth said.
Picking An AI ETF
The go-to AI for many investors is also one of the better performers this year: The Global X Artificial Intelligence & Technology, says Rosenbluth. The ETF, which is up more than 47% this year, spreads AI bets across nearly 90 companies. It puts just 3% into Microsoft vs. the QQQ which puts more than 10% in just that single position.
"The ETF invests in companies that stand to benefit from the further development and utilization of AI as well as providing the hardware to use AI to analyze big data. AIQ owns similar stakes in others like Adobe and ServiceNow," he said.
Another option is the $100 million-in-assets ROBO Global Artificial Intelligence ETF, Rosenbluth says. It holds nearly 70 positions in AI companies "developing the technology and infrastructure enabling AI, such as computing, data and cloud-services, as well as companies that apply AI in various" industries, he said.
It's also willing to diverge from the Nasdaq 100. Yes, it owns a 2.5% stake in Microsoft. But also Alteryx, Cloudflare and Splunk, which aren't in the Nasdaq 100 yet. Investors should look for new choices, too. Roundhill Generative AI ETF launched in May. The fund adds international companies like Baidu to U.S. stalwarts like Microsoft and Nvidia.
AI ETFs: It's Just The Beginning
Just know AI is just getting started. And while Nvidia looks like the winner now, lots can change. Investors must be nimble, and AI ETFs can help with that.
"We're in the early stages of AI development approaching the one-year mark of the Chat GPT public release," said Zeno Mercer, research analyst at VettaFi. "There's a lot more growth to come as more companies generate revenues from consumer and industrial applications."
Better Than Nvidia?
Top-performing stocks in Global X Artificial Intelligence & Technology ETF
| ETF | Ticker | Year-to-date % ch. |
|---|---|---|
| IonQ | 256.2% | |
| Super Micro Computer | 253.0% | |
| Nvidia | 241.8% | |
| Meta Platforms | 180.0% | |
| Uber Technologies | 121.8% | |
| Shopify | 100.9% | |
| Tesla | 95.8% | |
| Adobe | 81.6% | |
| Splunk | 76.3% | |
| ServiceNow | 72.1% |
