5 ETFs to Buy AI Stocks
Artificial Intelligence (AI) is not just a buzzword but a transformative technology influencing various sectors, from healthcare to finance, and automotive to consumer electronics. For investors looking to tap into this potential, Exchange-Traded Funds (ETFs) focused on AI stocks present an efficient way to gain diversified exposure to companies leading the charge in AI innovation. This article dives deeper into five ETFs, providing a detailed exploration of their strategies, holdings, and how they position investors in the burgeoning AI landscape.
1. Global X Robotics & Artificial Intelligence ETF (BOTZ)
Overview: The Global X Robotics & Artificial Intelligence ETF (BOTZ) is designed to track the performance of the Indxx Global Robotics & Artificial Intelligence Thematic Index. It focuses on companies that stand to benefit from the increased adoption of robotics and AI, including those involved in industrial robotics, automation, autonomous vehicles, and AI technologies.
Holdings: BOTZ includes a mix of companies across different regions, with a significant portion allocated to Japanese and U.S. companies (26% of the fund is invested in Japan, 54% in US stocks), reflecting the global nature of AI innovation.
Its portfolio spans key players in automation, such as NVIDIA Corporation (NASDAQ:NVDA), which makes up almost 19% of its holdings, known for its GPU technology pivotal in AI computations, and Intuitive Surgical (NASDAQ:ISRG), a leader in robotic-assisted surgeries, with a 10.83% weighting. This means that about $19 of every $100 invested will currently go toward NVDA stock. See BOTZ’s top 10 holdings below.
As of January 31, 2024, here’s how the fund is invested by sector. Just over half is invested in information technology stocks.
Investment Thesis: By investing in BOTZ, investors gain access to a diversified set of companies leading the way in AI and robotics, sectors expected to see significant growth as automation becomes increasingly prevalent across industries.
2. ARK Autonomous Technology & Robotics ETF (ARKQ)
Overview: Managed by ARK Invest, the ARK Autonomous Technology & Robotics ETF (ARKQ) adopts an actively managed strategy focusing on companies involved in autonomous transportation, robotics, 3D printing, energy storage, and space exploration. ARKQ aims to capitalize on the convergence of these technologies, betting on companies positioned to benefit from disruptive innovation.
Holdings: ARKQ's portfolio is dynamic, reflecting ARK Invest's active management approach. It includes a 10.7% position in Tesla (NASDAQ:TSLA), a leader in electric and autonomous vehicles, and a 9.17% weighting in Trimble (NASDAQ:TRMB), which specializes in GPS technology crucial for autonomous navigation systems. 91% of the fund is currently invested in North American companies. See ARKQ’s top 10 holdings below.
Investment Thesis: ARKQ offers investors exposure to the cutting edge of technology and innovation. Its active management approach allows it to adapt to rapidly changing trends within the AI and robotics sectors, potentially offering higher returns to those willing to accept the risks associated with such a strategy.
3. Robo Global Robotics and Automation Index ETF (ROBO)
Overview: The Robo Global Robotics and Automation Index ETF (ROBO) aims to provide investment results that correspond generally to the price and yield performance of the ROBO Global Robotics and Automation Index. This ETF focuses on companies worldwide that are leading the robotics and automation revolution, including those directly involved in AI development.
Holdings: ROBO's portfolio is much more diverse than the previous 2 ETFs, including both well-established companies and emerging players across a broad range of sectors and countries. This ensures investors benefit from growth in the robotics and automation space, both from large firms and innovative startups pushing the industry forward. As you can see below, the largest holding only makes up 2.08% of assets, and NVDA stock only makes up 1.88% of holdings.
ROBO ETF Top 10 Holdings:
Here are the industry classification breakdowns as of December 31, 2023. Also, 47% of the fund is invested in North America, while 28% is invested in Asia and 25% in Europe.
Investment Thesis: With its broad diversification and global focus, ROBO offers investors a comprehensive way to invest in the robotics and automation sectors. Its emphasis on both established leaders and emerging innovators provides a balanced approach to capturing growth in the AI space. This is a good ETF for those who don’t want to put a large sum of money into any one company.
4. iShares Robotics and Artificial Intelligence Multisector ETF (IRBO)
Overview: The iShares Robotics and Artificial Intelligence Multisector ETF (IRBO) tracks the NYSE FactSet Global Robotics and Artificial Intelligence Index. It includes companies that could benefit from the long-term growth in robotics and AI across various sectors, making it a diversified investment in the AI theme.
Holdings: IRBO's holdings are diversified not just across companies but also across sectors, including technology, healthcare, industrials, and consumer discretionary. This sector-spanning approach allows investors to benefit from AI applications in different industry verticals.
IRBO Top 10 Holdings:
Investment Thesis: IRBO's diversified, multi-sector strategy is designed to mitigate the volatility associated with the tech sector, offering a more balanced portfolio for investors interested in AI. Its global and sectoral diversification provides exposure to a wide array of applications of AI and robotics technology.
5. VanEck Vectors Semiconductor ETF (SMH)
Overview: SMH seeks to replicate the performance of the MVIS® US Listed Semiconductor 25 Index, focusing on companies in the semiconductor sector, which is crucial for the AI industry.
Holdings: The ETF includes leading semiconductor companies such as ASML (NASDAQ:ASML), NVIDIA, and Taiwan Semiconductor (NYSE:TSM), which are essential players in the production of AI technologies. About 80% of the fund is invested in US companies. Check out SMH’s top holdings below.
Investment Thesis: Investing in SMH allows investors to tap into the semiconductor industry's backbone of AI, offering exposure to companies critical for AI hardware and technological advancements.
Which ETF Has the Best Performance?
When assessing the investment potential of each ETF, it's crucial to consider their performance over time. The Compound Annual Growth Rate (CAGR) provides a useful measure of an ETF's annualized return over specific periods, offering insights into its growth trajectory (we built a CAGR calculator you guys can use). SMH has been the best performer so far. Here's a look at the long-term returns of each ETF as of January 31, 2024.
Global X Robotics & Artificial Intelligence ETF (BOTZ)
1-Year CAGR: 20.33%
3-Year CAGR: -5.30%
5-Year CAGR: 9.49%
ARK Autonomous Technology & Robotics ETF (ARKQ)
1-Year CAGR: 7.99%
3-Year CAGR: -15.38%
5-Year CAGR: 9.9%
Robo Global Robotics and Automation Index ETF (ROBO)
1-Year CAGR: 3.44%
3-Year CAGR: -4.89%
5-Year CAGR: 8.97%
iShares Robotics and Artificial Intelligence Multisector ETF (IRBO)
1-Year CAGR: 9.99
3-Year CAGR: -8.19%
5-Year CAGR: 8.4%
VanEck Vectors Semiconductor ETF (SMH)
1-Year CAGR: 57.7%
3-Year CAGR: 18.83%
5-Year CAGR: 32.11%
10-Year CAGR: 26.09%
Here, we can clearly see that SMH, the semiconductor ETF, has blown all of the other ETFs out of the water.
Conclusion: Which Should You Pick? What is the Best ETF for AI?
Choose Global X Robotics & Artificial Intelligence ETF (BOTZ) if you're seeking concentrated exposure to the robotics and AI sectors, with a significant emphasis on U.S. and Japanese companies. BOTZ is particularly suited for those looking to invest heavily in industry leaders like NVIDIA and Intuitive Surgical, representing the forefront of AI technology and robotics applications. Ideal for investors who believe in the specific growth potential of these areas and prefer a focused investment approach.
Opt for ARK Autonomous Technology & Robotics ETF (ARKQ) if you value an actively managed investment strategy that adapts to the rapidly evolving tech landscape. With a significant stake in North American companies, including Tesla and Trimble, ARKQ is tailored for those who seek exposure to the cutting edge of autonomous technology, robotics, 3D printing, and energy storage. It's a match for investors willing to embrace the higher risks for potentially greater rewards offered by disruptive innovation.
Select Robo Global Robotics and Automation Index ETF (ROBO) if diversification across a broad spectrum of the robotics and automation industry appeals to you. ROBO’s wide-ranging portfolio, featuring both established companies and emerging players across various sectors and geographies, makes it an excellent choice for those looking to spread their investment across the industry without concentrating too much capital in any single company. It's ideal for investors seeking a balanced approach to capturing growth in the AI and robotics sectors globally.
Go with iShares Robotics and Artificial Intelligence Multisector ETF (IRBO) if you're aiming for a diversified, multi-sector strategy that reduces volatility by spreading investments across technology, healthcare, industrials, and consumer discretionary sectors. IRBO's global and sectoral diversification offers a broad exposure to the applications of AI and robotics technology, making it suitable for investors looking for a stable, well-rounded portfolio that taps into AI's growth potential across different industries.
To invest in the semiconductor industry, crucial for AI technology, VanEck Vectors Semiconductor ETF (SMH) offers targeted exposure to leading semiconductor firms. It has also been the best performer by far.
Investing in AI through these ETFs offers a strategic way to participate in the growth of a key technology of the future. Each ETF, from BOTZ's and SMH’s thematic focuses to ARKQ's active management, ROBO's global approach, and IRBO's sector diversification, presents a unique way to invest in the AI revolution. Investors should consider their investment goals, risk tolerance, and the specific attributes of each ETF to determine the best fit for their portfolios.
