A bear market is usually defined by a peak-to-trough decline of 20% in an index like the S&P 500 (^GSPC 0.41%). The S&P narrowly avoided the threshold in April, when it was down by as much as 19% on the back of President Donald Trump's "Liberation Day" tariffs. It has since recovered most of its losses, and the bull market that began in October 2022 remains intact.
The current bull market has produced a total return of 65% in the S&P over the last two and a half years, and it has been driven by emerging themes like artificial intelligence (AI). In fact, investors who haven't owned some of the biggest names in the AI space have probably underperformed the index by a wide margin:
AI is shaping up to be a powerful long-term value creator, so it isn't too late for investors to participate. But rather than trying to separate the individual winners from the losers, it might be a smart move to buy the Roundhill Generative AI and Technology ETF (CHAT 1.46%). It's an exchange-traded fund (ETF) that holds a concentrated portfolio of the world's top AI stocks.
Investors can buy a single share in the ETF for under $50. Here's why it could be a great addition to any diversified portfolio.
Image source: Getty Images.
A great collection of global leaders in AI
ETFs can hold hundreds or even thousands of individual stocks, but the Roundhill ETF holds just 38. It's an actively managed fund, which means a team of experts attempts to deliver the best possible outcome for investors by regularly adjusting its holdings.
The portfolio managers invest in companies developing the platforms, hardware infrastructure, and software powering the AI revolution. The AI industry is still in its infancy so the list of quality companies in those three segments is very short, thus the small number of holdings in the ETF.
The top five positions in the ETF are some of the biggest names in AI right now, and they represent almost one-quarter of the total value of its portfolio:
|
Stock |
Roundhill ETF Portfolio Weighting |
|---|---|
|
1. Nvidia |
8.13% |
|
2. Alphabet |
4.60% |
|
3. Palantir Technologies |
4.04% |
|
4. Microsoft |
3.86% |
|
5. Oracle |
3.73% |
Data source: Roundhill. Portfolio weightings are accurate as of May 29, 2025, and are subject to change.
Nvidia supplies the world's most powerful graphics processing units (GPUs) for data centers, which are the key pieces of hardware required to develop AI. The company is coming off another blistering quarter, delivering a record $39.1 billion in data center revenue, which was up 73% year over year. The result was driven by demand for its Blackwell GPUs, which continues to far exceed supply.
Alphabet, Microsoft, and Oracle are three of Nvidia's biggest customers. They fill their data centers with GPUs and rent the computing capacity to AI developers for a profit. Plus, Alphabet's Gemini and Microsoft's Copilot have become two of the most successful AI virtual assistants in the industry, and they continue to create new opportunities for the companies to generate revenue.
I shared a chart earlier that displays the performance of a handful of AI stocks over the last few years, and Palantir was at the top of the group. Demand has soared for its AI software platforms like Gotham, Foundry, and AIP, which help businesses and governments analyze their data more effectively to extract highly useful insights. Palantir has a market capitalization of $288 billion as of this writing, but top tech analyst Dan Ives (from Wedbush Securities) thinks it's headed to a $1 trillion valuation over the next two or three years.
Outside of its top five positions, the ETF holds a number of other top AI stocks. From the hardware space there is CoreWeave, Broadcom, Taiwan Semiconductor Manufacturing, and Advanced Micro Devices, and then there are software players like Meta Platforms, Amazon, and Salesforce.
The Roundhill ETF can supercharge a diversified portfolio
The Roundhill ETF doesn't have a very long track record because it was only established in May 2023. However, it's up by 68% over that period, which is much better than the 40% gain in the S&P 500 index in the same period.
With that said, investors are paying a premium for that outperformance. The ETF has an expense ratio of 0.75%, which is the proportion of the fund deducted each year to cover management costs. That's on the higher end of what many other specialized AI ETFs cost to hold, and it's much higher than what Vanguard typically charges for its index funds, which is often 0.1% or less.
But the Roundhill ETF's performance so far has significantly outweighed its costs, and that trend could continue if AI lives up to expectations. Nvidia CEO Jensen Huang thinks data center operators will spend $1 trillion per year on AI infrastructure and chips by 2028, which will be a huge tailwind for his company and several other Roundhill ETF holdings like CoreWeave, Broadcom, AMD, and Taiwan Semiconductor Manufacturing.
Plus, Nvidia has previously said data center operators could earn $5 over four years for every $1 they invest in the company's chips by renting the computing capacity to AI developers in the cloud. If that's true, companies like Alphabet, Microsoft, Oracle, and Amazon could be poised for significant growth from here, which would also boost the ETF.
Therefore, investors who want to add more AI exposure to their existing diversified portfolios of other stocks and funds should seriously consider the Roundhill ETF.
