The amount of money that companies are spending to expand their technical infrastructure is eye-popping. However, it's all being done to better handle the demand for artificial intelligence (AI) products and services. From an investing perspective, the best thing you can do is to figure out ways of benefiting from this powerful trend.
Finding the right exchange-traded fund (ETF) can give adequate exposure in a diversified and effortless manner. There's one that has performed exceptionally well in recent years. Here's the smartest AI ETF that investors can buy right now with $2,000.
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Know what you own
It's a good idea to consider the Invesco QQQ Trust (QQQ 0.92%) if you're an investor who wants exposure to the AI boom. This ETF contains 100 stocks, tracking the performance of the Nasdaq-100 index. This consists of the 100 largest non-financial companies that trade on that exchange. Compared to the widely followed S&P 500, this is a much more concentrated index.
By buying the Invesco QQQ Trust, investors immediately own 100 different securities. However, it's not equally weighted. In fact, the most valuable businesses feature prominently. For instance, the "Magnificent Seven" group, an elite cohort of disruptive, innovative, and tech-forward enterprises, together represent 45% of the QQQ's asset base. Unsurprisingly, investors must be bullish on internet-driven tailwinds if they're looking to own this ETF.
The top position is Nvidia. It's already a major winner in the AI race, providing critical graphics processing units that support data center operations for its customer base. Microsoft and Apple round out the top three holdings. Both are investing time and resources into AI initiatives, whether it's via the Microsoft Azure cloud business or with Apple's upcoming enhanced Siri assistant.
There are clear winners in the AI wars today. Looking out a decade from now, there will certainly be other companies that rise up the ranks. Investors don't have to try to pick these winners early on. The Invesco QQQ Trust ensures you'll own these stocks.
Big gains at a low price
It shouldn't come as a shock that because of its huge positions in those previously mentioned businesses, the Invesco QQQ Trust has been a fantastic performer. In the past decade, it has registered a total return of 536% (as of Oct. 1). Had you invested $2,000 in this ETF at the start of October 2015, you'd have $12,730 today. This comes out to a yearly gain of 20%.
The monster success of those dominant companies, showcased by increasing revenue and earnings, has driven share prices higher. Valuation expansion is another key variable in the equation that can't be overlooked.
Investors aren't being asked to pay a pretty penny to capture such a phenomenal return. The Invesco QQQ Trust charges a 0.2% expense ratio. That presents an extremely attractive proposition, leaving more money in the portfolio at the end of the day.
Keep this in mind
Buying the QQQ makes sense as part of a well-diversified portfolio. There are certainly risks to pay attention to. The most obvious is if progress with artificial intelligence proves to be less successful than many hope, and the returns on all this capital spending disappoint. If the market starts to become pessimistic in its views, questioning the assumption that AI is actually a revolutionary technology, then these massive tech stocks could take a hit. Maybe that would bring about a bear market.
I believe this ETF is still worthy of a $2,000 investment, especially for investors with a five- or 10-year time horizon. Even before everyone became enamored with AI, these businesses were still selling products and services that were facing strong demand from users and customers. If AI ends up being a game-changing tech shift, then the upside could be significant. But even if the eventual outcome is more muted, investors' portfolios should still gain.
