Asset managers worldwide are introducing a wave of new exchange-traded funds (ETFs) centered on artificial intelligence (AI), offering investors fresh avenues to capitalize on the surging enthusiasm surrounding AI technology. This trend persists even as the long-term industry leaders in AI remain uncertain.
According to data from financial services firm Morningstar, over one-third of the two dozen ETFs featuring AI in their names have been launched in 2024 alone. In the past week, three additional AI ETFs entered the market, including a revamped cloud computing ETF now specifically targeting AI. Collectively, these AI-focused ETFs have amassed assets totaling $4.5 billion, approaching the $5.5 billion held by nuclear power-themed ETFs and significantly surpassing the $1.37 billion in the cannabis sector.
“It’s no surprise that AI ETFs are multiplying,” said Daniel Sotiroff, senior analyst at Morningstar. “This is a fast-growing, dynamic industry, and investors are hopeful about the potential for substantial returns in a relatively short period.” The impressive 200 percent-plus stock gain by chipmaker Nvidia over the past 12 months has only bolstered investor confidence in AI’s potential.
Tony Kim, head of the fundamental equities technology group at BlackRock, emphasized that AI is poised to benefit a wider array of companies in the future. BlackRock recently launched two new actively managed AI-themed ETFs: the iShares A.I. Innovation and Tech Active ETF and the iShares Technology Opportunities Active ETF. These funds aim to capture emerging opportunities within the evolving AI landscape.
“The AI market is going to change dramatically,” Kim noted. “What you think it is today isn’t going to be what it becomes tomorrow or in the next few years.”
Market analysts Ohsung Kwon and Savita Subramanian from Bank of America Securities reported an “AI arms race” among tech giants like Microsoft and Amazon.com. They project that capital spending from four mega-cap companies heavily investing in AI will reach $206 billion this year, marking a 40 percent increase over 2023. In contrast, capital expenditures from the remaining companies in the S&P 500 are expected to decline slightly.
Venture capital firms are also intensifying their focus on AI startups, with estimates from venture firm Accel predicting up to $79.2 billion in funding by the end of the year—an increase of 27 percent over 2023. This means that 40 cents of every dollar invested by venture capitalists will support an AI company.
Despite the growing interest, investing in AI-themed ETFs does not guarantee outperforming the broader market. The largest AI fund, the Global X Artificial Intelligence & Technology ETF, has risen about 20 percent so far this year, compared to a 22 percent increase for the benchmark S&P 500.
Nathan Miller, vice president of product development at Amplify ETFs, discussed the firm’s recent rebranding of an existing cloud-computing ETF to focus on AI, now called the Amplify Bloomberg AI Value Chain ETF. “We’re aiming to gain exposure to the cloud sector with a specific AI tilt,” Miller explained. “Our long-term goal is to capitalize on the anticipated impact of AI capital spending on corporate earnings and to stay ahead in identifying new investment opportunities.”
“Like every ETF firm out there, we strive to offer investors something differentiated,” added Miller.
Reference(s):
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