Exchange-traded funds (ETFs) can hold dozens or even hundreds of individual stocks. Some are constructed to track the performance of market indexes like the S&P 500 (^GSPC 1.33%), whereas others are designed to give investors exposure to specific industries like artificial intelligence (AI).
The Roundhill Generative AI and Technology ETF (CHAT 1.90%) invests in a highly concentrated group of companies developing the platforms, infrastructure, and software driving the AI industry forward. Investors can buy a single share for under $50, and here's why it might be the ultimate AI ETF to add to a diversified portfolio.
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Exposure to Nvidia, Microsoft, Palantir, and more
The Roundhill Generative AI and Technology ETF holds just 52 stocks. It's actively managed, which means Roundhill's team of experts selects those stocks based on their potential to generate positive returns for the fund and their role in the AI industry.
Since it's a highly specialized ETF, it has an expense ratio of 0.75%, which is the proportion of the fund deducted each year to cover management costs. That makes it significantly more expensive than passive index funds like the Vanguard S&P 500 ETF, which has an expense ratio of just 0.03%.
Cost is something to consider because it can negatively impact returns over the long run, but investors are getting the convenience of a highly concentrated portfolio filled with the world's best AI stocks without having to do the necessary time-consuming research to construct it themselves.
The top five holdings in the ETF, which account for 26% of the total value of its portfolio, include a glittering lineup of AI leaders:
|
Stock |
Roundhill ETF Portfolio Weighting |
|---|---|
|
1. Nvidia |
7.32% |
|
2. Alphabet |
5.24% |
|
3. Microsoft |
4.94% |
|
4. Meta Platforms |
4.68% |
|
5. Palantir Technologies |
3.86% |
Data source: Roundhill. Portfolio weightings are accurate as of Feb. 23, 2025, and are subject to change.
Nvidia supplies the most advanced graphics processing units (GPUs) for data centers, which are the key pieces of hardware when it comes to developing AI. Its Blackwell range of GPUs started shipping at the end of last year, and demand is expected to significantly outstrip supply for the foreseeable future. In the long term, Nvidia also plans to dominate subsegments of the AI industry like autonomous driving and robotics.
Alphabet and Microsoft launched their own AI chatbots called Gemini and Copilot, respectively, which rival OpenAI's popular ChatGPT application. They also operate two of the world's largest cloud computing platforms, where they provide developers with the data center infrastructure and ready-made large language models (LLMs) they need to build their own AI software.
Meta Platforms also entered the chatbot race with Meta AI, which is now embedded into its social media apps like Facebook, Instagram, WhatsApp, and Messenger. It's powered by the company's Llama family of LLMs, which are the most popular open-source models in the world, with over 600 million downloads. Meta CEO Mark Zuckerberg thinks Llama 4 could be the most advanced model in the industry when it launches this year, beating even the best closed-source models from the likes of OpenAI.
Finally, Palantir was one of the best-performing AI stocks last year, with a whopping 340% gain. Investors were enthused by the company's accelerating revenue growth, driven by surging demand for its AI-powered software platforms, which help businesses and governments extract more value from their data.
Outside its top five positions, the Roundhill ETF holds several other top AI stocks, including Oracle, Broadcom, Apple, Amazon, Advanced Micro Devices, and more.
NASDAQ: PLTR
Key Data Points
The potential for market-beating returns
The Roundhill ETF was only established in May 2023, so it doesn't have a very long track record we can use to determine its long-term potential. However, it delivered a return of 30.9% during 2024, which comfortably beat the 23.3% gain in the S&P 500. The outperformance was partly driven by its top five holdings, which generated an average return of almost 125%:
Simply put, if the largest AI companies continue to deliver strong revenue and earnings growth, this ETF is likely to perform extremely well going forward. Roundhill believes AI could add $7 trillion to the global economy by 2032 (citing a study from Goldman Sachs), and a lot of that value will be created by its top holdings like Nvidia, Alphabet, and Microsoft.
However, investors should never put all of their eggs into one highly concentrated ETF. They are likely to yield the best results by adding it to a diversified portfolio of other funds or individual stocks because that will protect them from catastrophic financial losses in the event AI fails to live up to expectations.
Had an investor put $50,000 into the S&P 500 at the start of 2024, they would have ended the year with a balance of $61,650 (excluding dividends). However, if they split that investment by placing 70% in the S&P 500 and the other 30% in the Roundhill ETF, their $50,000 would have grown to $62,790 instead.
It doesn't sound like a big difference, but it could be a game changer over a period of 10 years or more, thanks to the effects of compounding.
There is no guarantee the AI industry will maintain its recent momentum, but this technology is likely to rival the internet and the smartphone in terms of its impact on businesses and consumers over the long run. The Roundhill ETF offers one of the simplest ways for investors to profit from its potential success.
