2 Artificial Intelligence ETFs to Buy Before the Stock Market Hits a New All-Time High

THE S&P500 (SNPINDEX: ^GSPC) hit a record high earlier this year, certifying the bull market that began when the index bottomed in October 2022. But it is currently in the midst of a modest sell-off, which began in late March, as investors face headwinds from inflation and interest rates.

History suggests that the S&P 500 always climbs to new highs given enough time, and given that the index is just 1.3% below its recent closing high as of this writing, it looks like to a typical bull market decline. This gives investors the opportunity to buy stocks at a discount, especially those in hot sectors like artificial intelligence (AI), which have surged higher over the past year.

Predicting which AI stocks will perform best over the long term is a challenge for even the most seasoned Wall Street analysts, given the pace at which the industry is evolving. Fortunately for investors, there is a simple solution.

Image source: Getty Images.

Exchange Traded Funds Are a Great Option

Exchange traded funds (ETFs) can hold dozens or even hundreds of individual stocks, either from a specific sector of the market or to replicate the performance of a specific market index. They are usually managed by a team of experts who adjust the portfolios as necessary, making them ideal for passive investors.

Since ETFs can hold a large number of stocks, a company’s bankruptcy will not result in catastrophic financial losses, which is an important advantage when investing in emerging technologies like AI.

There are several ETFs available today that can offer investors exposure to the AI ​​boom. Here is why the Roundhill Generative AI and Technology ETF (NYSEMKT: CHAT) and the iShares ETF for the broad technology sector (NYSEMKT:IGM) are two excellent choices.

1. Roundhill Generative AI and Technology ETF

Generative AI has the potential to cause an explosion of productivity in the global economy through applications such as ChatGPT, which can create text, images, videos and even computer code on demand. The Roundhill ETF invests in companies developing the infrastructure, platforms and software needed to bring generative AI to life.

The ETF holds 52 different stocks, but is heavily weighted toward its top 10 holdings, which represent 51.4% of its total portfolio value:

Action

Roundhill Generative AI ETF Portfolio Weighting

Data source: Roundhill. Portfolio weightings as of May 7.

The story continues

Nvidia is the poster child of the AI ​​revolution. It makes the world’s most powerful graphics processing chips (GPUs), capable of handling mountains of data to help developers train AI models. The company is currently worth $2.3 trillion, with about $1.5 trillion of that value created in the last 12 months alone thanks to a 214% rise in its stock price.

Microsoft is the largest company in the world by market capitalization, and integrates AI across its entire product portfolio. It has developed its own models, but it agreed to invest $10 billion in ChatGPT creator OpenAI last year, so it is leveraging that startup’s technology as well. Alphabet is also developing its own AI models under the Gemini banner, which are transforming its flagship platforms like Google Search.

Adobe uses generative AI to improve its creative software products like Photoshop. Similarly, Safesforce developed an AI assistant called Einstein to help customers get more value from its customer relationship management tools.

The Roundhill ETF was only created in mid-2023, so it doesn’t have a very long history. It has gained 14.2% this year so far, better than the S&P 500, which is up 9.4%.

Such a concentration of AI stocks in this ETF could lead to underperformance if the technology fails to live up to the hype. However, for those looking for some exposure, this ETF would be a great addition to a diversified portfolio.

2. iShares ETF for the broad technology sector

This iShares ETF has a relatively broad focus: investing in technology and technology-related companies that develop everything including (but not limited to) hardware, software, and Internet marketing.

Therefore, the ETF’s 278-stock portfolio doesn’t just include AI names. However, its top 10 holdings account for 55.9% of its total portfolio value, and the list features some of the most popular AI stocks:

Action

iShares Broad Technology Sector ETF Weighting

Data source: iShares. Weightings are accurate as of May 6.

Apple hasn’t been as vocal about its AI initiatives as other tech giants, but it could become one of the most valuable companies in the industry. Its iPhone 15 Pro is equipped with an Apple-designed A17 Pro chip, which the company says is capable of processing AI workloads on the device.

It lays the groundwork for integrating generative AI software, and in March, Alphabet and OpenAI were reportedly competing to have their chatbots installed by default on Apple’s 2.2 billion active devices.

However, despite being at the top of the chart above, Apple is not the largest holding in the iShares ETF. That title goes to Alphabet, with its Class A and Class C shares representing a combined 10.8% of its total portfolio value. As I touched on earlier, Alphabet’s powerful Gemini models bring generative AI to Google Search, but they’re also available to create content on popular products like Google Docs and Gmail.

Outside of its top 10, the ETF owns a number of other important stocks in the AI ​​space. They understand Micron technologywhich makes memory and storage chips crucial for AI workloads, and Crowd strikeleader in AI-based cybersecurity software.

The ETF was created in 2001, so it has a long history which gives investors some confidence. It has generated a compound annual return of 10.6% since its inception; this figure has increased to 19.9% ​​over the past 10 years thanks to the proliferation of technologies such as software, cloud computing and AI. Assuming AI lives up to the hype, there’s a good chance these returns will continue for the foreseeable future.

Should you invest $1,000 in Tidal Trust II – Roundhill Generative Ai & Technology ETF right now?

Before buying shares in Tidal Trust II – Roundhill Generative Ai & Technology ETF, consider this:

The Motley Fool Stock Advisor analyst team has just identified what they believe to be the 10 best stocks for investors to buy now…and the Tidal Trust II ETF – Roundhill Generative Ai & Technology was not one of them. The 10 selected stocks could produce monster returns in the years to come.

Consider when Nvidia made this list on April 15, 2005…if you had invested $1,000 at the time of our recommendation, you would have $553,959!*

Stock Advisor provides investors with an easy-to-follow plan for success, including portfolio building advice, regular analyst updates, and two new stock picks each month. The Stock Advisor service has more than quadrupled the return of the S&P 500 since 2002*.

See the 10 values ​​»

*Stock Advisor returns as of May 6, 2024

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Adobe, Advanced Micro Devices, Alphabet, Amazon, Apple, Baidu, CrowdStrike, Meta Platforms, Microsoft, Netflix, Nvidia, Salesforce and ServiceNow. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Mad Motley has a disclosure policy.

2 Artificial Intelligence ETFs to Buy Before the Stock Market Hits a New All-Time High was originally published by The Motley Fool

Source