Artificial intelligence (AI) was the dominant stock market theme of 2023. Nvidia (NVDA +3.75%) became the poster child for the technology, and its stock delivered a 239% return for the year, which led the S&P 500.
Nvidia already opened 2024 with an 8% gain, suggesting investors aren't done betting on AI. But investing in individual AI stocks can be risky. As with most new technologies, not every company in the space will survive -- nor will they deliver short- or long-term gains as significant as Nvidia's. For example, C3.ai is a popular AI stock that delivered a return of 156% in 2023, but it's still down 82% from its all-time high.
Here's the good news: You won't need a crystal ball to benefit from the value AI creates over the long term.
Image source: Getty Images.
Cathie Wood's exchange-traded funds can help
An exchange-traded fund (ETF) can give investors exposure to an entire sector of the stock market, neatly packaged into a single security. An ETF can hold dozens or even hundreds of individual stocks, eliminating the need for investors to pick winners and losers in emerging industries, such as AI.
Cathie Wood is the head of Ark Investment Management, which operates 13 ETFs focusing on some of the world's most innovative technologies, including AI, electric vehicles (EVs), robotics, space exploration, and even blockchain technology. Ark's funds are actively managed, so Wood and her expert team regularly buy and sell stocks, aiming to give investors the best possible outcomes.
Below, I'll highlight two of the most suitable Ark ETFs for investors who want to dive into the world of AI.
1. Ark Innovation ETF (ARKK)
The Ark Innovation ETF (ARKK +3.99%) is Ark's flagship fund. It owns a stake in 34 technology companies, and its portfolio is worth over $8.1 billion, making it one of the largest ETFs of its kind.
ARKK doesn't necessarily focus on AI specifically, but many of its largest holdings are either developing or using the technology extensively. These are some of the most notable:
|
Stock |
ARKK Portfolio Weighting |
|---|---|
|
Tesla |
7.7% |
|
Roku |
7.5% |
|
UiPath |
6.9% |
|
Shopify |
3.2% |
|
Palantir Technologies |
1.6% |
Data source: Ark Investment Management. Portfolio weightings are accurate as of Jan. 9, 2024, and are subject to change.
Wood regularly refers to Tesla as the greatest AI play in the world. It's more than just an EV company; Elon Musk and his team are working hard to deliver fully autonomous self-driving cars to the masses, the software for which is powered by machine learning and AI.
Streaming giant Roku also uses AI to recommend content to users and to deliver targeted advertising. UiPath, on the other hand, develops robotics and automation software designed to streamline business processes.
The ARKK ETF is quite concentrated, with its top 10 positions accounting for 61.4% of the fund's total value. That can lead to volatility -- in fact, while ARKK delivered a whopping 67% return in 2023 (more than double the return of the S&P 500), it's still trading 68% below its all-time high.
NYSEMKT: ARKK
Key Data Points
ETFs can be safer than individual stocks because the failure of one company won't sink your entire investment. That's a valuable feature when investing in new technologies, like AI, but ARKK is proof that ETFs are not risk-free. Investing for a five- to 10-year period can smooth out the noise and yield the best results.
2. Ark Autonomous Technology and Robotics ETF (ARKQ)
The Ark Autonomous Technology and Robotics ETF (ARKQ +1.63%) is a smaller fund than ARKK, with just $977 million under management. It focuses on a more niche segment of the technology sector, specifically companies developing autonomous technologies (which tend to be powered by AI).
ARKQ holds 36 stocks, and the majority are utilizing AI in some way. Its most notable AI names include:
|
Stock |
ARKQ Portfolio Weighting |
|---|---|
|
Tesla |
12.4% |
|
UiPath |
9.8% |
|
Nvidia |
2.6% |
|
Alphabet (Google) |
2.3% |
|
Advanced Micro Devices |
1.6% |
Data source: Ark Investment Management. Portfolio weightings are accurate as of Jan. 9, 2024, and are subject to change.
As you can see, Tesla makes up a much larger portion of ARKQ than it does ARKK. ARKQ also has a position in Nvidia, which, as I mentioned, has become synonymous with AI. The company simply can't produce enough of its AI data center chips to meet demand, which continues to surge.
Alphabet is another ARKQ stock. It has developed generative AI chatbots, like Bard and Gemini, which can rapidly produce text, images, videos, and even computer code. It's integrating them into Google Search, Google Docs, and Google Cloud, among other products, to ramp up AI monetization.
Advanced Micro Devices is an important stock. It's gearing up to ship large volumes of its new MI300 series of data center chips, which are designed to compete with Nvidia's leading hardware.
NYSEMKT: ARKQ
Key Data Points
ARKQ has delivered a compound annual return of 12.1% per year since its inception in 2014. That's better than the long-term average annual return of the S&P 500, which is around 10.2% going back to 1957. However, ARKQ is trading at 44% below its all-time high right now. So, like ARKK, it isn't immune to volatility. A long-term investment horizon is likely needed to generate the best results.
