Asset managers are rapidly expanding their offerings of exchange-traded funds (ETFs) focused on artificial intelligence (AI), providing investors with new avenues to participate in the burgeoning AI market.
In 2024 alone, over one-third of the existing two dozen AI-themed ETFs have been launched, according to Morningstar data. This surge includes the recent addition of a cloud computing ETF that has been rebranded to specifically target AI, bringing the total assets in AI ETFs to $4.5 billion. This figure approaches the $5.5 billion held by nuclear power-themed ETFs and significantly exceeds the $1.37 billion in the cannabis sector.
\"I'm not surprised their ranks are multiplying,\" said Daniel Sotiroff, a senior analyst at Morningstar. He emphasized the rapid growth and dynamic nature of the AI industry, highlighting the potential for substantial returns. The impressive 200% stock gain by chipmaker Nvidia over the past year underscores the confidence investors have in AI's future.
Tony Kim, head of BlackRock's fundamental equities technology group, believes AI will generate a broader range of beneficiaries moving forward. BlackRock recently launched two new AI-themed ETFs, the iShares A.I. Innovation and Tech Active ETF and the iShares Technology Opportunities Active ETF, designed to actively capture emerging opportunities within the AI sector.
According to Bank of America Securities analysts Ohsung Kwon and Savita Subramanian, an \"AI arms race\" is underway among tech giants like Microsoft and Amazon.com. They project capital spending on AI by four major companies will reach $206 billion this year, a 40% increase from 2023. Simultaneously, capital spending by the remaining 496 companies in the S&P 500 is expected to dip slightly.
Venture capital investment in AI startups is also on the rise, with an estimated $79.2 billion directed to AI ventures by the end of the year, marking a 27% increase from 2023, according to venture firm Accel. This means that 40 cents of every dollar invested by VC firms will go to an AI company, signaling strong confidence in the technology's potential.
However, investing in AI-themed ETFs does not guarantee market outperformance. The largest AI fund, the Global X Artificial Intelligence & Technology ETF, has risen about 20% this year, slightly trailing the S&P 500's 22% increase.
Amplify ETFs recently rebranded an existing cloud-computing ETF to focus on AI, naming it the Amplify Bloomberg AI Value Chain ETF. Nathan Miller, vice president of product development at Amplify, stated, \"Now, we're trying to get exposure to the cloud with a specific AI tilt.\" The long-term goal is to profit as AI capital spending translates into earnings and to stay ahead in identifying new opportunities.
\"Like every ETF firm out there, we are trying to offer investors something differentiated,\" Miller added.
Reference(s):
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