Advancements in artificial intelligence (AI) have captured the imagination of both the market and the general public in 2023, so it’s no surprise to see AI-focused ETFs posting solid gains from the start of the year. With just $13 million in assets under management (AUM), the WisdomTree Fund for Artificial Intelligence and Innovation (BATS:WTAI) could be a hidden gem among these funds. Here’s why there’s plenty to like about this little under-the-radar ETF.
AI is just getting started
WisdomTree writes that AI is “a transformative megatrend that has the potential to impact nearly all aspects of how we live and work globally in the years to come.”
And while AI offers a lot of long-term growth potential, it is also being used in many applications that impact our lives and businesses today – be it chatbots like ChatGPT, self-driving technology in cars, industrial automation or workflow automation software.
Legendary investor Stanley Druckenmiller, who reportedly earned back 30% a year over a 30-year period while running Dusquense Capital, recently said AI could be “as impactful as the internet”. He also said that while he believes we’re facing a “hard landing” economically, AI leaders like Nvidia and Microsoft could be “incredible opportunities” coming out of a hard landing.
He further noted that even if there is a major recession, Nvidia’s AI opportunities are so compelling that he is not convinced that Nvidia’s share price will fall even though it has a high price-to-earnings ratio.
Thoughtful diversification
WTAI offers investors a diversified and comprehensive way to gain exposure to AI. Not only does it have 76 different stocks, but it’s also not overly concentrated on its top holdings like some other AI-themed ETFs. The top 10 holdings only make up 22.6% of the fund, meaning investors aren’t overly exposed to the ups and downs of a few big holdings. Top position Nvidia weighs only 3%, which is reasonable.
Another thing I like about WTAI’s holdings is that it invests in a broad swath of today’s AI universe. WisdomTree says the WTAI ETF seeks to “provide precise entry into the AI megatrend through direct investment in publicly traded companies around the world focused on capitalizing AI across a broad range of technologies and applications.”
WTAI focuses its investment focus on AI in four key areas: AI software, semiconductors, hardware (including autonomous vehicles, drones, robotics, and industrial automation), and what it calls “innovation,” an all-encompassing category that can be any company using AI to disrupt existing industries.
Below is a snapshot of WTAI’s top holdings using TipRanks’ holdings tool, which gives investors a comprehensive overview of an ETF’s top holdings and their characteristics.
Semiconductors are critical to powering AI applications, and you’ll find plenty of leading semiconductor names here, such as Nvidia, Taiwan’s Alchip Technologies, Advanced Micro Devices, and Lattice Semiconductor.
Nvidia is a semiconductor leader when it comes to AI, with some sources estimating it has an 85% share of the GPU market, but not counting AMD if that, which Morgan Stanley analyst Joseph Moore recently said has an opportunity within AI that is many times greater than initially expected. Semiconductor manufacturing companies such as Taiwan Semiconductor and ASML Holding NV also rank in the top 10 here, as AI would not be possible without these companies that manufacture the chips behind it for the likes of Nvidia and Advanced Micro Devices.
WTAI also has the mega-cap tech names, such as with Meta Platforms, and further down the list, Microsoft, Alphabet, and Amazon, all of which are making exciting strides in AI technology. The portfolio also includes software companies such as ServiceNow and UiPath that use AI in their offerings to help customers streamline and automate their workflows.
Another thing to note about WTAI’s top rankings is that they have some very strong Smart Scores. The Smart Score is TipRanks proprietary quantitative stock scoring system that evaluates stocks on eight different market factors. The result is data-driven and requires no human intervention. A Smart Score of 8 or higher is the equivalent of an Outperform rating.
Nvidia, C3.Ai, Lattice Semiconductor, Cadence Design Systems and ASML lead the way with ‘Perfect 10’ Smart Scores. Meanwhile, AMD and Infineon Technologies also have Outperform-equivalent ratings, with Smart Scores of 8 and 9, respectively.
Is WTAI a buy, according to analysts?
Analysts are also bullish on WTAI, giving it a Moderate Buy rating. Of the 886 ratings on WTAI, 70.56% are Buys, 24.32% Holds, and 5.11% Sells. WTAI’s average price target of $20.13 implies ~15% upside potential from current levels.
Reasonable expense ratio
WTAI has a reasonable expense ratio of 0.45%. While this isn’t as cheap as one might expect from a low-cost, broad-market index fund, it’s at least reasonable for a specialized, thematic ETF like this. While it’s a bit higher than I’d normally like to see, when I look at a number of other popular AI-themed ETFs using TipRanks’ ETF comparison tool, WTAI has the lowest expense ratio of the bunch, making the iShares Robotics and Artificial Intelligence Multisector ETF (NYSEARCA:IRBO) and comes in much lower than several other prominent names.
TipRanks users can use the comparison tool to easily compare up to 20 stocks or ETFs based on a wide variety of customizable key criteria, such as price, Smart Scores, past performance, AUM, and much more.
A strong choice to invest in the AI megatrend
One risk investors should be aware of is that with $13 million in assets under management, WTAI is a very small ETF, which means it can be more volatile than larger ETFs. However, it also has sufficient daily trading volume that liquidity should not be an issue for the average retail investor.
In summary, with a reasonable expense ratio (especially compared to other AI-themed ETFs) and a well-diversified portfolio of holdings spanning all aspects of the AI space, WTAI appears to be a strong choice for investors looking to gain exposure to this powerful asset. long-term megatrend.
Revelation
