If you've paid any attention at all over the past three years, you've probably recognized that artificial intelligence (AI) has been taking over almost every aspect of our lives. It's probably safe to say that it's become the biggest technological revolution since the internet and it's only going to keep growing more influential.
As is the case with almost any emerging technology, investors are looking to jump on board. Nvidia has been the poster child for the AI boom, but there's so much more involved than just semiconductor chips. In a lot of cases, it's better to just buy the entire theme than try to pick individual winners.
That's why I think the Roundhill Generative AI & Technology ETF (CHAT +1.11%) is the best way to play the AI trend.
The global AI spending boom
The amount of money being spent on AI development is staggering. Gartner forecasts that global spending will hit $1.5 trillion in 2015 and $2 trillion in 2026.
Semiconductors may be the most visible part of the ecosystem, but the Gartner study expects it to account for less than 15% of spending in 2026. Among the sub-industries forecast to see greater AI investment: smartphones, application software, and AI-optimized servers.
Clearly, there are opportunities to be had outside of Nvidias of the world!
Image source: Getty Images.
How the Roundhill ETF invests in the AI theme
As the name suggests, the Roundhill ETF focuses on companies dedicated to developing generative AI capabilities and related technologies. Eligible companies need to derive at least 50% of their revenue from AI-related industries, such as software, semiconductors, cloud, and network infrastructure. The fund is actively managed, which is highly preferable given the rapid evolution of the space.
Because of its narrow focus, CHAT may be one of the better pure plays on generative AI as opposed to funds that invest in tech more broadly. While it does have exposure to "Magnificant Seven" names, including Alphabet, Nvidia, and Microsoft, it's the investments in smaller and global companies that help it to hit the theme more comprehensively.
The active management of the fund has also yielded positive results. In a recent note, Roundhill has said that the ability to remain nimble and adjust its positioning in real time has allowed it to either underweight or overweight positions in Nvidia, CoreWeave, Apple, and Palantir Technologies.
That's helped the Roundhill Generative AI & Technology ETF to deliver a 46% gain year to date (as of Dec. 2). This beats the performance of three of its index-based competitors, the Global X Artificial Intelligence & Technology ETF, the WisdomTree Artificial Intelligence & Innovation ETF, and the iShares Future AI & Tech ETF, which are up 30%, 32%, and 27%, respectively.
NYSEMKT: CHAT
Key Data Points
Why the Roundhill ETF is set up for years of success
While the proliferation of artificial intelligence seems widespread, it's actually still in the early stages of adoption. A McKinsey study finds that 88% of companies are using AI and 79% are using generative AI in at least one business function.
If you look deeper, however, it says that only 7% of those companies are at full scale deployment, while 32% say that they're still experimenting and another 30% say that they're only in the piloting stage. Widespread adoption of generative AI still has miles to go and a lot of increased usage potential.
With trillions of dollars being invested in AI development and the vast majority of companies still in the very early innings of their own AI implementation, it's easy to see why investors are so positive on this theme.
Like the internet before, this narrative is likely going to take years to play out. The Roundhill Generative AI & Technology ETF could be a great way to ride the theme.
