Between work, family, hobbies and other obligations, most people don’t have hours to dedicate to stock research. Besides, let’s be honest. Picking individual stocks is more difficult and risky than buying a basket of companies. This makes exchange-traded funds, or ETFs, an attractive vehicle. ETFs trade just like stocks, but the funds hold dozens of stocks linked by a specific theme. Several ETFs focus on the market’s hottest sector: artificial intelligence (AI).
There’s a lot of hype around AI, and the enthusiasm is justified. Companies are spending billions of dollars researching and bringing real-world solutions to market, and organizations in many industries are already integrating generative AI and large language models (LLMs) into workflows. The efficiencies these tools provide and our ultra-competitive business environment will encourage more companies to adopt them.
One estimate predicts that the global market size will approach $2 trillion by the end of this decade, as shown below.
What are the best artificial intelligence ETFs?
Not all ETFs are created equal. Factors such as diversification, assets under management, historical performance and expense ratio are important. The Global X Robotics & Artificial Intelligence ETF (NASDAQ: BOTZ) is a popular AI fund. It has $2.8 billion in assets under management and an expense ratio of 0.68%, which is competitive. The portfolio currently includes 43 companies, with a focus on companies that “will benefit from the increased adoption and utilization of robotics and artificial intelligence.”
BOTZ is heavily weighted towards its top positions. Nvidia (NASDAQ: NVDA) It covers more than 10% of the fund and the four largest investments account for more than 35%. The fund has performed less well than the SPDR S&P 500 ETF (NYSEMKT: SPY) over the past year, despite Nvidia gaining 248%.
Besides the dependence on a few top companies, another potential disadvantage is the lack of large technology companies. BOTZ investors are missing out Alphabet (NASDAQ: GOOG)(NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), Meta (NASDAQ), and Microsoft (NASDAQ: MSFT)and even one of my personal favorites, Arm positions (NASDAQ:ARM).
BOTZ is best suited for investors looking for a well-managed single-stock portfolio with a focus outside of big tech.
Global X also manages the Artificial Intelligence and Technology ETF (NASDAQ: AIQ). AIQ has positions in 84 companies, has an expense ratio of 0.68%, and has crushed the S&P 500 over the past year, as you can see below.
The Artificial Intelligence & Technology ETF has positions in all of the above stocks except Arm Holdings. The top stock is also Nvidia, but it represents only 5% of the total. AIQ is best for those looking for a diversified portfolio with an emphasis on big tech. AIQ is an excellent choice with a great recent track record.
Here’s my favorite
However, my favorite AI ETF is the WisdomTree Artificial Intelligence and Innovation Fund (NYSEMKT: WTAI). WTAI is the worst performing fund in the chart above, but this doesn’t mean it won’t perform better in the future. Nvidia and Microsoft account for almost 13% of the S&P 500 and 8% of the AIQ, but less than 5% of the WTAI, which explains the underperformance. These stocks exploded last year, but they could quickly reach fair value and level off.
The WisdomTree Artificial Intelligence and Innovation Fund is the most diversified of the three funds I chose, with no company accounting for more than 3% of assets. It currently owns 75 stocks, including big tech names. It also has the lowest expense ratio of 0.45%. The top investments are in semiconductors (33%) and AI software (24%), booming industries with serious room for growth as AI continues to evolve. The recent underperformance could soon change as the semiconductor industry is cyclical and appears to be heading for a new upward cycle after a difficult 2022 and 2023.
WTAI is a great choice for those who want significant diversification, a low expense ratio, and exposure to the biggest names in the industry.
You don’t have to be a brilliant stock picker to benefit from an emerging industry like AI. Sometimes it’s best to let those who have more time to follow stocks choose. ETFs provide broad exposure with less risk and volatility. There are countless options; perhaps one of the above is right for you.
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Suzanne Frey, a director 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. Bradley Guichard has positions in Alphabet, Amazon, Arm Holdings and Nvidia. The Motley Fool holds positions in and recommends Alphabet, Amazon, Microsoft and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
Here Is My Top Artificial Intelligence (AI) ETF to Buy Now was originally published by The Motley Fool
