Artificial intelligence (AI) has triggered a frenzy among investors in 2023. A flurry of start-ups showcased their AI projects, with OpenAI's online chatbot ChatGPT grabbing the most attention so far.
The estimates surrounding the potential economic impact of this technology are wide-ranging, though substantial even at the low end. Research firm McKinsey & Company, for example, predicts AI will add $13 trillion to global economic output by 2030. Cathie Wood's Ark Investment Management, on the other hand, places that number at a whopping $200 trillion.
Investors who believe in the future of AI might want to consider capturing that boom in their portfolios, but separating the quality opportunities from the hype isn't easy. Here's one way to own a slice of the AI revolution while limiting risk at the same time.
NYSEMKT: IRBO
Key Data Points
Exchange-traded funds offer diverse exposure to AI
Exchange-traded funds (ETFs) are listed securities that any investor can buy. They come in many forms; some are designed to track the performance of an entire stock market index like the S&P 500, whereas others offer direct exposure to just one industry or even one sector of one industry.
The iShares Robotics and Artificial Intelligence Multisector ETF (IRBO +0.75%) gives investors an opportunity to own shares in 116 different robotics and AI companies, neatly packaged into one security they can buy and sell just as easily as a single stock.
The fund was established in June 2018, and it has $318 million in assets as of this writing. It charges a management fee equivalent to 0.47% of its assets each year, which is used to pay for staff, marketing, and distribution. That's a cheaper rate than other leading ETFs in this category, which charge as much as 0.95%.
Since its inception, the IRBO ETF has underperformed the return of the S&P 500, partly because of the steep drop in the technology sector during 2022.
But the tide has turned this year as AI really started to catch investors' attention. The ETF has more than doubled the gains generated by the S&P 500 so far in 2023.
What investors will own when they buy the IRBO ETF
Some of the most important AI stocks in the IRBO ETF portfolio include:
- Meta Platforms (META 0.23%): The parent company of Facebook, Instagram, and WhatsApp. It's integrating AI into all of its social media platforms to more accurately serve content to users.
- Nvidia (NVDA +0.10%): The leader in AI semiconductors with a 90% market share. Its chips are responsible for training the models behind ChatGPT.
- Advanced Micro Devices (AMD +1.21%): One of Nvidia's closest competitors. It's set to release its new MI300 data center chip later this year, which is designed to train large language models.
- Microsoft (MSFT 0.21%): This year the company has invested in OpenAI (ChatGPT) and Builder.ai, integrating AI technology into its Bing search engine, Azure cloud platform, and more.
- Alphabet (GOOGL +1.37%)(GOOG +1.09%): The parent company of Google. It's developing new AI tools for its search engine and cloud platforms.
Those five stocks alone make up 6.2% of the IRBO ETF. Some of its other noteworthy holdings include Snowflake, Spotify Technology, Amazon, Splunk, and Adobe. All of those companies are using AI in their businesses in one way or another.
The AI revolution likely isn't slowing down any time soon. While investors can earn a higher return by owning individual AI stocks like Nvidia, which is up 117% this year alone, that strategy requires an ability to carefully select winners and losers. The IRBO ETF is a more conservative way to play AI, but its diverse portfolio significantly reduces the risk of downside.
Plus, given the amount of attention the industry is receiving, the IRBO ETF has a great chance to continue outperforming the broader stock market in 2023 and beyond.
