Artificial intelligence (AI) stocks have driven the S&P 500 higher for the last few years, and with trillions of dollars in spending on data centers in the pipeline, they are likely to remain a major source of returns. However, not all AI stocks are created equal.
Had investors bought Palantir Technologies at the start of 2025, they would be sitting on a 124% gain today. But had they bought Upstart Holdings instead, they would be down 26%. Picking winners and losers in this emerging industry isn't easy, which is why most investors might be better off buying an exchange-traded fund (ETF) instead.
The iShares Future AI and Tech ETF (ARTY +1.51%) holds 48 different AI stocks, including many of the industry leaders, so it can insulate investors from steep losses if one or two names underperform. Here's why the ETF could be a great addition to any diversified portfolio.
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Investing in AI services, software, and infrastructure
The iShares Future AI and Tech ETF invests in innovative AI companies from the U.S. and around the world. It aims to give investors exposure to the full AI value chain, which includes software, services, and infrastructure. Below are a couple of the most noteworthy holdings in the ETF from each of those categories:
Software
- Palantir helps businesses and government organizations extract maximum value from their data through its AI-powered software platforms Gotham and Foundry.
- Microsoft developed an AI assistant called Copilot, which can accelerate workflows in the company's flagship software products like Windows, Word, Excel, and Outlook.
Services
- Alphabet is home to the world's largest internet search engine, Google Search, which the company is currently enhancing with AI-powered features like AI Overviews. Alphabet also offers a range of cloud services for AI developers through its Google Cloud platform.
- Snowflake developed a platform called Cortex AI, where businesses can access a range of tools to help them aggregate their data and develop their own AI applications.
Infrastructure
- Nvidia supplies the world's best data center chips and networking equipment for AI development. Its latest Blackwell Ultra graphics processing units (GPUs) are specifically designed to handle the intense workloads from AI reasoning models like OpenAI's GPT-5.1, Anthropic's Claude Opus 4.5, and Alphabet's Gemini 3.
- Advanced Micro Devices is developing a fully integrated data center rack called Helios, which will feature its new MI400 Series GPUs paired with specialized hardware and software. It will be launched in 2026. The company says it could offer a tenfold leap in performance compared to its previous generation of GPUs, and it may pose a real threat to Nvidia's dominance.
Some of the other notable stocks in this ETF include semiconductor companies Broadcom and Micron Technology, in addition to "Magnificent Seven" powerhouses Amazon and Meta Platforms, and AI cybersecurity vendors Palo Alto Networks and CrowdStrike Holdings.
This iShares ETF is crushing the S&P 500
The iShares Future AI and Tech ETF was originally established in 2018 with a focus on AI and robotics, but it was restructured in August 2024 to narrow its focus on AI specifically. Therefore, it doesn't have a very long track record of performance for investors to analyze.
However, the ETF has soared 42% since the restructuring, obliterating the S&P 500 index, which returned 23% over the same period.
NYSEMKT: ARTY
Key Data Points
The strong upside is a direct result of the ETF's actively managed structure, which means a team of experts constantly adjusts its portfolio based on what they believe will deliver the best results. That comes with a cost in the form of the ETF's expense ratio of 0.47%, meaning an investment of $100,000 will incur an annual fee of around $470.
Many index funds issued by companies like Vanguard offer expense ratios as low as 0.03%, so from that perspective, the iShares ETF is quite expensive. That isn't a problem as long as the ETF continues to deliver strong returns, but it's something for long-term investors to consider.
