6 of the Best AI ETFs to Buy Now

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First quarter earnings season has highlighted a crucial point for artificial intelligence (AI) investors: There’s going to be significant volatility ahead.

Take, for example, Meta Platforms Inc. (ticker: META), which saw its shares plunge more than 10% after its report, despite posting strong overall earnings.

While Meta beat first-quarter 2024 expectations with revenue of $36.54 billion and earnings per share of $4.71, the subsequent earnings call led by CEO Mark Zuckerberg prompted a sell-off.

Zuckerberg’s commitment to heavily invest in AI and focus on growing the user base over immediate revenue generation didn’t sit well with investors, leading to a sharp decline in share price after he indicated that monetization of these efforts was still some way off.

This approach, combined with lower-than-expected revenue guidance and higher-than-anticipated capital expenditure forecasts, triggered the selling frenzy.

This episode shows how sensitive the market can be to major technology companies like Meta as they dive into new areas like AI. Investor reactions to unpredictable events like earnings and strategic updates can dramatically sway your investment’s value.

To manage this risk, you might consider diversifying. While giants like Microsoft Corp. (MSFT), Nvidia Corp. (NVDA), Apple Inc. (AAPL) and Alphabet Inc. (GOOGLGOOG) are at the forefront of AI, investing directly in these stocks means juggling multiple positions and transactions.

A more streamlined alternative is investing through thematic exchange-traded funds (ETFs). These ETFs provide you with exposure to a wide range of companies leading in AI, all within a single, liquid investment vehicle.

This approach can help smooth out the volatility of individual stocks and simplify your investment strategy, making it an attractive option for tapping into the potential of AI without the direct risks associated with single-stock investments.

“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:

Invesco AI and Next Gen Software ETF (IGPT) 0.60%
Roundhill Generative AI & Technology ETF (CHAT) 0.75%
Amplify AI Powered Equity ETF (AIEQ) 0.75%
Global X Artificial Intelligence & Technology ETF (AIQ) 0.68%
Global X Robotics & Artificial Intelligence ETF (BOTZ) 0.68%
iShares Robotics and Artificial Intelligence Multisector ETF (IRBO) 0.47%

Invesco AI and Next Gen Software ETF (IGPT)

“Looking ahead to 2024, 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 firm offers IGPT for AI exposure.

The benchmark for IGPT is 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 artificial intelligence such as data storage, robotics, autonomous vehicles, semiconductors and web platforms,” Reyna says. IGPT currently charges a 0.6% net expense ratio.

Roundhill Generative AI & Technology ETF (CHAT)

“Generative AI is the most exciting technological advancement in years, with the ability to transform how we live and work,” says Dave Mazza, chief executive officer at Roundhill Investments. “We remain in the early stages of adoption and see investors starting to embrace the companies powering this trend.” Some examples you may be familiar with include video generator Sora and image generator DALL-E.

Both of these generative AI tools are developed by OpenAI, which Microsoft has heavily invested in. Unsurprisingly, the second-largest holding in CHAT is Microsoft at a 10.4% weight. But the ETF also holds 49 other actively selected AI-related stocks such as Nvidia, Alphabet, Meta Platforms, Adobe Inc. (ADBE) and Amazon.com Inc. (AMZN). CHAT charges a 0.75% expense ratio.

Amplify AI Powered Equity ETF (AIEQ)

The intersection of AI and ETFs doesn’t just entail investing in AI companies. With ETFs like AIEQ, investors can also use AI to help automate and enhance the stock-picking process. “AIEQ leverages IBM Watson’s unparalleled machine learning and AI capabilities, analyzing over one million data points daily across various sources,” says Christian Magoon, founder and CEO of Amplify ETFs.

This ETF has been around since October 2017 and currently tracks the AI Powered Equity Index, which is rebalanced monthly. It uses IBM Watson to do the usual bottom-up fundamental research of analyst reports, financial filings, and social media sentiment that would otherwise require a traditional portfolio management team. AIEQ currently charges a 0.75% expense ratio.

Global X Artificial Intelligence & Technology ETF (AIQ)

One of the most used benchmarks for the U.S. technology sector, the Nasdaq-100 index isn’t actually as representative as one may expect. The index actually features many non-technology companies, such as PepsiCo Inc. (PEP) and Costco Wholesale Corp. (COST). For a more pure-play alternative, Global X offers AIQ, which currently tracks 84 holdings represented by the Indxx Artificial Intelligence & Big Data Index.

“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 currently include Nvidia, Amazon, Netflix Inc. (NFLX), Meta Platforms, Qualcomm Inc. (QCOM), Alphabet and Broadcom Inc. (AVGO). AIQ charges a 0.68% expense ratio.

Global X Robotics & Artificial Intelligence ETF (BOTZ)

“Trillions of dollars’ worth of chips will be up for replacement within data centers in the next few years to accommodate the rapid adoption of generative AI,” Dessai says. “This presents an exciting total addressable market for Nvidia Corp. and given their pole position in premium AI chips (such as the H100), we see them continue to own the lion’s share of the space by 2030.”

Unsurprisingly, Global X’s other AI ETF, BOTZ currently features a 9.1% allocation to Nvidia. But you can also find companies in other sectors deploying AI such as Intuitive Surgical Inc. (ISRG). “We see BOTZ as a more niche play on applied automation,” Dessai says. Compared to AIQ, BOTZ has a heavier weight to the industrials and health care sectors, and ex-U.S. companies. It also charges a 0.68% expense ratio.

iShares Robotics and Artificial Intelligence Multisector ETF (IRBO)

Thematic ETFs usually charge much more than broad market index ETFs. For instance, both AIQ and BOTZ charge a 0.68% expense ratio despite passively tracking an index. The actively managed CHAT charges 0.75% to account for the time and resources spent by its management team on selecting and managing holdings. For cost-conscious AI investors, a much cheaper alternative is IRBO.

This ETF charges a more reasonable 0.47% expense ratio, which works out to around $47 in annual fees for a $10,000 investment. It tracks the NYSE FactSet Global Robotics and Artificial Intelligence Index, which equally weights just over 100 AI-related stocks. This approach reduces concentration risk in the ETF’s top holdings and provides more exposure to small- and mid-cap AI stocks.

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