6 of the Best AI ETFs to Buy Now - WTOP News (2024)

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The ongoing artificial intelligence, or AI, arms race has seemingly ushered in a new era of technological innovation and stock market growth.

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“We expect the AI market to reach over half a trillion dollars in value in 2024 even amid a slowdown in venture capital funding, as organizations across various sectors adopt AI to enhance efficiency, cut costs and enhance customer experiences,” says Tejas Dessai, assistant vice president and research analyst at Global X ETFs.

The AI race has also sparked a series of high-profile legal conflicts, however. In January, the U.S. Federal Trade Commission, or FTC, launched an inquiry into corporate partnerships and investments with AI providers, with the goal of assessing the nature of their relationships and possible competitive impacts.

This scrutiny led to compulsory orders being sent to five companies, notably including mega-cap publicly traded tech firms such as Alphabet Inc. (ticker: GOOG, GOOGL), Amazon.com Inc. (AMZN) and Microsoft Corp. (MSFT), which owns a substantial stake in ChatGPT-maker OpenAI.

Adding to the drama, Elon Musk, the CEO of Tesla Inc. (TSLA) and X (formerly Twitter), has launched a lawsuit against OpenAI and its CEO, Sam Altman. Musk alleges that OpenAI — initially funded by him under the premise of remaining a nonprofit for public benefit — has deviated from its mission by fostering a close relationship with Microsoft, contrary to the founding agreement’s intent for open code access.

Finally, another significant event was the problematic launch of Google’s chatbot, Gemini, criticized by users for exhibiting a biased response pattern. Collectively, these incidents underscore the unpredictable nature of investing in individual AI companies, with potential regulatory actions, legal disputes and product missteps posing considerable, uncompensated risks.

For investors, the key takeaway is the importance of diversification within the AI industry. While individual companies may encounter turbulence, the AI industry as a whole is poised for sustained growth. Therefore, investing in thematic AI exchange-traded funds, or ETFs can offer a way to gain exposure to a broad basket of high-growth AI companies, mitigating the 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,” Dessai says. “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:

Global X Artificial Intelligence & Technology ETF (AIQ)

“We’re witnessing a moment of mass disruption unfold. 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, and given their pole position in premium AI chips, we see them continue to own the lion’s share of the space by 2030.” For AI exposure, Global X offers AIQ, which tracks 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. In addition to Nvidia Corp. (NVDA), AIQ also holds other AI upstarts such as Meta Platforms Inc. (META), which plans on using its own in-house chips to reduce reliance on the former’s products. Currently, AIQ sits at around $1.4 billion in assets under management, or AUM, and charges a 0.68% expense ratio.

Global X Robotics & Artificial Intelligence ETF (BOTZ)

“Aside from AI processors, Nvidia’s broad stack — including its networking solutions — positions them quite attractively to monetize across the emerging computing stack,” Dessai says. “In addition to its hardware, Nvidia’s position is solidified by its CUDA platform, which allows AI developers to deploy workloads efficiently and work with clusters of GPUs.” To capture this advantage, Global X’s other AI-themed ETF, BOTZ currently features a high 21% allocation to shares of Nvidia.

“We see BOTZ as a more niche play on applied automation,” Dessai says. “In addition to the momentum of AI, the theme also benefits from industrial investments supporting broad reshoring of manufacturing across the United States.” The focus of this ETF is not only on Nvidia, but also on companies that are deploying AI in their products and services, such as Intuitive Surgical Inc. (ISRG) and Dynatrace Inc. (DT). Investors can expect $2.7 billion in AUM and a 0.69% expense ratio.

[READ: 5 Best Free Stock Analysis and Research Tools Online]

Global X Data Center REITs & Digital Infrastructure ETF (VPN)

The high processing power demanded by AI applications requires sophisticated infrastructure, notably in the form of enterprise data centers. For exposure to these, investors can buy the real estate investment trusts, or REITs, that own or operate them, such as Equinix Inc. (EQIX) and Digital Realty Trust Inc. (DLR). Or they can buy the companies that produce the servers and cloud computing capabilities necessary to make this a reality, such as Super Micro Computer Inc. (SMCI).

However, investors can also buy VPN, which holds all three of the aforementioned companies and more by tracking the Solactive Data Center REITs & Digital Infrastructure Index for a 0.50% expense ratio. “The consumption of foundational AI infrastructure bodes well for cloud infrastructure companies and AI software makers,” Dessai says. “With the growing availability of GPU computing power, we expect adoption of AI-based software and applications to see acceleration in the coming days.”

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. For AI exposure, Invesco offers IGPT, which tracks the STOXX World AC NexGen Software Development Index for a 0.60% expense ratio.

“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. Its current portfolio of 100 stocks is tilted toward large-cap growth companies like Nvidia, Meta Platforms, Advanced Micro Devices Inc. (AMD), Alphabet, Qualcomm Inc. (QUAL), Intel Corp. (INTC) and Adobe Inc. (ADBE).

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 strategy officer at Roundhill Investments. “We remain in the early stages of adoption and see investors starting to embrace the companies powering this trend.” For example, applications like OpenAI’s chatbot ChatGPT, text-to-image model DALL-E and text-to-video model Sora have seen widespread recreational and commercial use.

Roundhill’s AI ETF, CHAT, differs from the previous options by being actively managed. Instead of adhering to the rules of an external index, the ETF is free to select and weight a more concentrated, high-conviction portfolio based on Roundhill’s research and discretion. Currently, the ETF’s top holdings include Nvidia, Microsoft, Alphabet, Adobe, Meta and Advanced Micro Devices. Despite being actively managed, it is only marginally more expensive than the previous ETFs at a 0.75% expense ratio.

iShares Robotics and Artificial Intelligence Multisector ETF (IRBO)

Criticisms of AI-themed ETFs are typically directed at their high fees and concentration risk. All of the aforementioned ETFs charge an expense ratio of 0.60% or higher, and many weight their portfolios strongly in favor of a few top holdings. Investors conscious of these disadvantages may prefer an alternative like IRBO, which offers a cheaper and more balanced approach to AI investing. This ETF tracks the NYSE FactSet Global Robotics and Artificial Intelligence Index and charges just 0.47%.

The benchmark used by IRBO weights a total of 111 holdings equally. Therefore, a large chipmaker like Nvidia is assigned roughly the same allocation as a smaller one like Arm Holdings PLC (ARM). In addition, the ETF has a global focus spanning a total of 43 developed or emerging market countries. This means that U.S. stocks only comprise around 54% of IRBO’s portfolio, adding a higher degree of geographical diversification. Over the last five years, IRBO has returned an annualized 12.6%.

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6 of the Best AI ETFs to Buy Now originally appeared on usnews.com

Update 03/07/24: This story was previously published at an earlier date and has been updated with new information.