You don't need super intelligence to pick the best AI stocks. You just need to know which AI ETF to buy.
A variety of AI-focused ETFs are cropping up to give investors "one-trade" access to a basket of potential winners. But they use different methodologies to buy pieces of the best AI stocks. You just need to know how to choose the right AI ETF for you — based on the size of bets the fund is making.
"There's no shortcut to choosing the right ETF in any category, and AI is no different," said Cinthia Murphy of ETF research firm Vetta Fi. "You have to look at underlying exposure to see, for example, how concentrated the portfolio is. Concentration is neither good nor bad, but it will impact returns over time."
Zeroing In On Large Language Models
Most of the large AI ETFs take a broad view of the industry. They add exposure to not just large-language model AI companies, but robotics as well. But there are options for investors who want to focus on the large-language model companies grabbing much of the AI buzz.
For instance, Roundhill's $500 million-in-assets Generative AI & Technology ETF focuses only on this part of the AI market. Its top holding, at 8.3% of the portfolio, is chipmaker Nvidia. Nvidia is designing many of the high-powered computer chips needed to run generative AI models.
But it also holds a large 5.8% stake in a much lesser-known company in the industry: Astera Labs. The company also designs and makes computing systems used in AI applications.
Similarly, the $500 million-in-assets Invesco AI and Next Gen Software ETF, also focuses on players in the large-language AI industry. But highlighting how approaches by two similar ETFs can be different, the ETF doesn't put Astera even in its top 10 of holdings. Its No. 1 position after Nvidia is Alphabet at 8.6%.
Go Broad In AI
Large language model AI has made a big splash, but Murphy thinks most investors should take a broader approach.
"(A) more diversified approach is a better way to capture AI as a theme in the longer-term. The leap in language models may have made AI a more tangible technology in the mainstream, but the reality is that AI is broad and it's constantly evolving," she said.
She thinks the true power of AI will be to power different industries to get more efficient and innovative. For instance, the $200-million-in-assets ROBO Global Artificial Intelligence ETF, "invests in companies developing AI and the infrastructure that enables AI as well as companies implementing AI in their business models," Murphy said.
The ETF takes a wide view of the industry. Astera Labs is the largest holding in the ETF, but is only a 3.7% weighting. Even Nvidia ranks just sixth with a 2.5% position. Other options of ETFs that look at AI broadly include Global X Artificial Intelligence & Technology ETF and iShares A.I. Innovation and Tech Active ETF.
But they're not the same. For instance, Nvidia is a huge 10.3% position in iShares A.I. Innovation and Tech Active, but less than 3.2% in Global X Artificial Intelligence & Technology and less than 2.6% in ROBO Global Artificial Intelligence. Their sector weights vary, too.
"The beauty of the ETF market is that it provides access to all sorts of sectors, themes and strategies, and thanks to product innovation, the investment tools have gotten sharper and sharper," Murphy said. "The challenge is that, as the investor, you have ample product choice and due diligence requires a little bit of homework."
Cashing In On AI
Select top tech and AI ETFs give investors an angle on the new industry
| ETF | Symbol | Assets, $ billions | Fee |
|---|---|---|---|
| iShares U.S. Technology | IYW | $23 | 0.39% |
| Fidelity MSCI Information Technology Index | FTEC | 14.9 | 0.08% |
| First Trust Dow Jones Internet Index Fund | FDN | 7.1 | 0.51% |
| iShares Expanded Tech Sector | IGM | 7.1 | 0.39% |
| iShares Global Tech | IXN | 5.8 | 0.39% |
| Global X Artificial Intelligence & Technology | AIQ | 4.4 | 0.68% |
| iShares Exponential Technologies | XT | 3.4 | 0.46% |
| Global X Robotics & Artificial Intelligence | BOTZ | 2.8 | 0.68% |
| iShares A.I. Innovation and Tech Active | BAI | 2.6 | 0.55% |
| SPDR S&P Kensho New Economies Composite | KOMP | 2.3 | 0.20% |
| Defiance Quantum | QTUM | 1.9 | 0.40% |
| Roundhill Generative AI & Technology | CHAT | 0.5 | 0.75% |
| Invesco AI and Next Gen Software | IGPT | 0.5 | 0.58% |
| ROBO Global Artificial Intelligence | THNQ | 0.2 | 0.68% |
