AI Craze Could Power These ETFs
The universe of investable assets with ties to artificial intelligence (AI) is commanding plenty of attention this year and that pertains to much more than Nvidia (NVDA), though that’s a compelling story itself.
Consider some recent news from the AI world. On June 8, Cohere announced it raised $270 million. By some estimates, that values the privately held company at $2.2 billion. That’s an impressive sum for a company that makes a competing product to the famed ChatGPT. If that valuation estimate is accurate or close to it, it speaks to value institutional investors see in AI and the price points at which they’re willing to enter the market.
Cohere is just one example. So is the $29 billion estimated valuation on ChatGPT, but those points and others buttress the case for AI-related exchange traded funds. ETF nerds know that this isn’t a new segment, but it is one that’s growing, particularly when AI-adjacent tech funds are included.
With that in mind, here are few options investors can consider when it comes narrowing the field of AI ETFs and allocating capital to this disruptive technology.
First Trust Nasdaq Artificial Intelligence and Robotics ETF (ROBT)
The First Trust Nasdaq Artificial Intelligence and Robotics ETF (ROBT) follows the Nasdaq CTA Artificial Intelligence and Robotics Index and is one of the more seasoned members of the AI ETF realm at nearly five-and-a-half years old.
ROBT merits attention in the AI ETF conversation because it’s not dependent upon the likes of Nvidia (NVDA) or Microsoft (MSFT) to drive its returns. Rather, the fund’s 107 holdings have a median market value of $15.53, essentially making ROBT a mid-cap fund. Additionally, concentration risk is low – an attractive trait with thematic funds – as no holding exceeds a weight of 2.84%. Additionally, ROBT provides ample leverage to generative AI.
“Chatbots like ChatGPT are considered ‘generative-AI’ because of their ability to generate unique content, drawing from large amounts of data,” according to First Trust research. “Various generativeAI applications can create text, images, audio, and video. After the blockbuster launch of ChatGPT, Microsoft announced a $10 billion investment in OpenAI and integration of the technology with its own search engine, Bing.3 Similarly, Google parent Alphabet has introduced Bard, its own effort to integrate generative-AI to streamline and enhance internet search, even including conversation AI features.”
Roundhill Generative AI & Technology ETF (CHAT)
Speaking of generative AI, there’s the Roundhill Generative AI & Technology ETF (CHAT), which is the newest member of the AI ETF space following its May debut. CHAT’s focus on generative AI is sensible and potentially compelling for investors because this is the most accessible form of AI and one with myriad applications across an array of professional fields and industries.
Generative AI has applications in media, content creation and internet search, among other pursuits. CHAT delivers that exposure with a solid lineup of familiar and large- and mega-cap growth names.
“Our base scenario results in GAI enterprise software reaching $120.8 billion in a decade, fueled by rising overall software spend, deep penetration of GAI applications and growth in the global labor force,” according to Roundhill research. "Our base scenario assumes that 10% of the global labor force utilizes GAI enterprise applications and that 50% of monthly software expenditure per employee shifts to GAI."
VanEck Robotics ETF (IBOT)
Robotics and AI are often lumped together and while they are distinct concepts, there are clear intersections between the two and the VanEck Robotics ETF (IBOT) is one of the ETFs through which investors can leverage those links.
IBOT is pertinent at a time when productivity growth among American workers is stagnant and companies are looking for efficiencies to boost profitability. That doesn’t mean all workers will be replaced by robots, but it does imply AI and robotics adoption at the corporate level will swell in the years ahead. That could bode well for IBOT as a long-term thematic play.
“The need to bolster U.S. productivity occurs against the backdrop of a world economy that is becoming less global: Political tensions and an increased focus on energy security—coupled with the COVID pandemic—have led to a less centralized, multipolar model,” notes Morgan Stanley. “Companies and countries are relying less on global supply chains and global market access and more on regional players and allies. One result of this shift has been a shrinking pool of labor for U.S. companies, making cheap labor, particularly for skilled manufacturing, harder to find.”
Like the aforementioned CHAT, IBOT is new as it debuted in April.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.