Investors have become drawn to all things related to artificial intelligence (AI). Some think this revolutionary technology can fundamentally change our society and economy, boosting productivity and providing a bump to GDP. Time will tell.
For those investors who want exposure to these types of companies, which only look like they'll be more important contributors to our economy in the future, perhaps an exchange-traded fund (ETF) is the solution. In fact, there's one AI ETF that I believe is a smart choice for a $2,000 investment right now.
It has been a huge winner in the past. And it could continue this streak in the years ahead. Here's what investors need to know.
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Owning the most dominant enterprises
One benefit of owning an ETF is that investors can skip picking individual stocks. You don't have to spend hours reading SEC filings, listening to earnings calls, or creating complex financial models. Plus, there isn't any ongoing research requirement. It's a laid-back approach, which is advantageous.
The other obvious perk is that investors get broad diversification. And with the Invesco QQQ Trust (QQQ 0.49%), there is lots of exposure to the AI boom. Just look at the top holdings in this monster ETF. Eight of the top 10 positions are heavily involved in some way, shape, or form to AI. This group includes Microsoft, Nvidia, Apple, Amazon, Broadcom, Meta Platforms, Tesla, and Alphabet.
At a high level, these companies provide cloud computing platforms, graphics-processing units, software, advertising tools, and other high-value products and services that all directly tie into AI. And given their vast financial resources, they are in powerful positions to invest ridiculous amounts of capital to stay ahead of the curve. For instance, Microsoft's capital expenditures are projected to total $80 billion this year, mainly for AI-related infrastructure.
In total, the Invesco QQQ Trust contains 100 of the largest nonfinancial stocks that trade on the Nasdaq stock exchange. But not all of them have to do with AI. Costco, the ninth-biggest holding, is a perfect example. However, the top 10 holdings represent half of the assets, so AI is the driving force.
Tremendous returns at a cheap price
In the past decade, the Invesco QQQ Trust has generated a total return of 418%. This gain trounces the rise of the more widely followed S&P 500 (^GSPC 0.28%). A $2,000 investment in the QQQ in late June 2015 would be worth almost $10,400 today. The success of those previously mentioned enterprises, with their growth opportunities, innovative and disruptive cultures, rising profits, and economic moats, helped to support investment gains.
You'd be forgiven for thinking that the fees are high for this ETF. The Invesco QQQ Trust charges an expense ratio of just 0.2%. On a $2,000 investment, only $4 is directed to paying the asset manager to handle its various expenses. That's a favorable setup.
Investors should set realistic expectations
It can be easy to extrapolate past returns into the future. But that's not a guarantee. While it's possible that the Invesco QQQ Trust generates another 418% total return in the next decade, investors should be prepared for lower gains.
If the global economy operates with higher interest rates than it had for most of the past decade, this could pressure GDP growth. At the same time, that could get in the way of higher stock market returns. This is something to keep in mind.
However, by adding the QQQ to your portfolio, you're ensuring adequate exposure to what might be one of the most important technological trends in history.
