If the 2000s were the decade of the internet, and the cloud dominated the 2010s, the 2020s could be the decade of artificial intelligence (AI). The idea of AI isn't new, but mainstream adoption and hype accelerated in 2023 when generative AI like ChatGPT began shocking the world.
Naturally, AI stocks have been blisteringly hot this year as investors seek ways to capitalize on the industry's potential. According to Statista, the global AI industry could grow 20-fold to nearly $2 trillion by 2030.
Searching for the next big thing can be like finding a needle in a haystack. But fortunately, you don't need to uncover the big AI winners -- here's why.
Early technology makes stock picking remarkably difficult
You might have seen this phenomenon before; think back to the early days of the internet. Stocks were soaring in 1999 from the mere mention of "dot-com" anywhere in their name or investor presentation. Yes, companies can play to the hype to drive their share price.
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But the problem is that such a young technology -- like the internet then, or AI today -- is unstable. Nobody knows which companies will end up emerging to dominate the industry 10 years from now. For every Amazon during the dot-com bubble, nine companies like Pets.com crashed and burned.
It's possible that some of today's hottest AI stocks will eventually crumble, while a company few know about today eventually grows many times its size over the years. Picking individual stocks isn't easy, so investors should diversify their portfolios. Your few winners could more than make up for many losers over time.
But when you look at nascent industries like AI today, it only cranks up the difficulty.
ETFs can give investors easy exposure to the upside
Why roll the dice on speculative stocks when you can easily get AI upside with exchange-traded funds (ETFs)? These are buckets of individual stocks assembled by fund managers and traded under a ticker symbol. Investors typically pay a small fee called the expense ratio, but it takes a lot of the guesswork out of investing, especially when focused on specific industries.
ETFs already available today give investors broad exposure to the AI industry. Since these are actively managed, fund managers will lean further into high-performing AI companies as they emerge over time.
Here are three ETFs worth looking into:
1. Invesco QQQ Trust, Series 1
Invesco QQQ Trust (QQQ 1.54%) is a technology-focused ETF concentrating on the sector's largest and most successful stocks. Its top holdings include Microsoft, Alphabet, and Nvidia, all of which have already dived headfirst into AI. Overall, tech stocks make up nearly 60% of the fund.
The fund has beaten the market over the past decade and charges a reasonable 0.2% expense ratio for that high performance. If you believe that deep-pocketed tech giants will use their profits to buy and invest their way into AI dominance, this is a quality ETF worth considering for your portfolio.
2. Ark Innovation ETF
The Ark Innovation ETF (ARKK 1.05%) has been hotly debated for several years. Led by famous investor Cathie Wood, the fund gained mainstream attention after making a large and profitable investment in Tesla. The fund has been volatile over the past couple of years, surging when interest rates were low and then plummeting as interest rates rose. The ETF charges a 0.75% expense ratio, steeper than you'll see from most funds.
Today, the fund targets mid- and large-cap investments; more than 85% of the fund is allocated to stocks with market caps between $2 billion and $100 billion. Tesla remains the fund's most significant position, followed by companies including Zoom, Roku, Block, and UiPath. Cathie Wood recently stated that she's bullish on her holdings for their proprietary data, which she believes gives them an advantage as AI grows.
3. Global X Robotics & Artificial Intelligence ETF
The Global X Robotics & Artificial Intelligence ETF (BOTZ 2.52%) is the most targeted ETF of this group. The fund focuses specifically on applications for robotics, automation, and AI. The robotics slant gives the fund more industrial exposure than you might expect; industrials make up 35% of the fund versus 48% in information technology. Investors will fork over a 0.69% expense ratio to hold shares.
The fund could be volatile due to its added industrial exposure -- an industry that can sink or swim depending on what the economy is doing. The ETF's top stocks include current AI darling Nvidia with a 12% weighting, followed by robotics surgery company Intuitive Surgical, and industrial companies like ABB and Keyence. Investors looking to invest in the automation of the world's economy should consider this ETF as a potential portfolio addition.
