This exchange-traded fund takes the hassle out of investors picking winners and losers in the AI sector.
The Internet boom culminated in a spectacular bust in the early 2000s, teaching investors that it can be difficult to discern winners and losers amid technological innovation. When the dust settles, many companies will not survive, and only some will.
It is also difficult to predict what the economic climate will be like in the coming years. when Amazon began using the Internet to sell books, but had no idea that most of his profits would eventually come from his cloud computing business. Because the cloud computing business didn't exist back then.
The current artificial intelligence (AI) revolution is probably no different. This is what the semiconductor giants look like Nvidia Incredible value is currently being created from AI. But some analysts predict that the software side of the industry could soon become even bigger.
Rather than picking AI winners and losers, investors may want to consider purchasing AI-focused exchange-traded funds (ETFs). Because ETFs can hold dozens of different stocks, one or two failures usually won't result in catastrophic losses for the entire fund. Here's why: iShares Future AI & Technology ETF (Artie 0.21%) It might be a great option.
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Diversified AI fund
This iShares ETF, founded in 2018 with a focus on robotics and multi-sector AI, better reflects a more focused goal of investing in companies at the forefront of the AI revolution. In August, we changed our name and reorganized our holdings. This includes companies that develop generative AI, AI infrastructure, AI software, AI data solutions, and more.
This ETF holds 46 stocks, but is concentrated in the top 10, accounting for 40.8% of the total portfolio value.
| Rank/Stock | Portfolio weighting | Rank/Stock | Portfolio weighting |
|---|---|---|---|
| 1. Advanced microdevices | 5.89% | 6. Metaplatform | 3.18% |
| 2.Broadcom | 5.86% | 7.Cloud Strike | 3.08% |
| 3. Nvidia | 5.58% | 8. Arista Networks | 3.02% |
| 4. Super microcomputer | 5.06% | 9. Alphabet class A | 2.98% |
| 5. Intel | 3.32% | 10. Palantir | 2.88% |
Data source: iShares. Portfolio weightings are accurate as of September 27, 2024 and are subject to change.
Semiconductor stocks occupy the top five spots in the iShares ETF because most of the current value is generated by semiconductor stocks. Nvidia supplies the industry's most powerful data center graphics processing units (GPUs) for AI development, but has struggled to keep up with demand. Advanced Micro Devices is a new competitor to Nvidia, but the company also holds a leadership position in the AI chip market for personal computing.
Broadcom, on the other hand, is a multifaceted AI company. We manufacture custom AI accelerators (chips) for leading tech companies and data center networking hardware such as Ethernet switches. Additionally, Broadcom subsidiaries are implementing AI in cybersecurity, cloud, and more.
But the iShares ETF also holds a diverse group of AI stocks that go beyond the hardware sector. For example, Meta Platforms created Llama, the most popular open source large-scale language model (LLM), and uses it to develop new AI capabilities for Facebook and Instagram. Then there's CrowdStrike, a leading provider of AI-powered cybersecurity software.
Beyond the top 10, the iShares ETF also holds the following major AI stocks: microsoft,Amazon, taiwan semiconductor manufacturingetc.
Because this is a specialized fund, it costs more to own than an ETF that simply tracks an index. S&P500. The expense ratio is 0.47%, which is the percentage of funds that are deducted annually to cover administrative costs. As an outlook, Vanguard S&P 500 ETF The expense ratio is only 0.03%. There are no ongoing fees for owning individual stocks, so investors should consider this cost before purchasing an ETF.
Potential for steady long-term profits
The iShares ETF is highly concentrated and can be prone to high volatility. This means that a small number of stocks can have a large impact on performance. That being said, this ETF has only been around in its current form for two months, so investors don't have much historical data to study.
Looking ahead, spending on AI infrastructure should continue to rise for at least the next year, meaning stocks like Advanced Micro Devices, Broadcom, and Nvidia are likely to perform well for some time to come. . Intel, which has plunged 51% so far this year, may also gain foothold soon as it is rumored to be an acquisition target, which could help restore some of its value.
AI software stocks like Metaplatform, CrowdStrike, and Alphabet could also be sources of upside for ETFs next year. Meta and Alphabet are trading at very attractive valuations, and 2025 could be a strong recovery year for CrowdStrike.
In summary, investors seeking exposure to the AI industry should consider purchasing this ETF instead of selecting a group of individual AI stocks. However, it is important to do this as part of a balanced portfolio to protect against potential volatility.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool's board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool's board of directors. Alphabet executive Suzanne Frye is a member of The Motley Fool's board of directors. Anthony Di Pigio has no position in any stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Arista Networks, CrowdStrike, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, Taiwan Semiconductor Manufacturing, and Vanguard S&P 500 ETFs. The Motley Fool recommends Broadcom and Intel and recommends the following options: A January 2026 $395 long call on Microsoft, a January 2026 $405 short call on Microsoft, and a November 2024 $24 short call on Intel. The Motley Fool has a disclosure policy.
