Artificial intelligence (AI) has transformed the technology landscape, and AI-focused stocks have been soaring over the last few years.
While concerns around a bubble persist, 62% of Americans feel confident about AI's long-term earnings potential, according to The Motley Fool's 2026 AI Investor Outlook Report. If this industry still has plenty of room for growth, investing now could prove to be lucrative in a few years.
In such a volatile sector, however, choosing individual stocks to buy can be challenging. For many people, investing in an AI ETF can be a simpler way to buy into the industry while diversifying your portfolio and mitigating risk.
These three funds focus on AI to different extents, fitting a wide variety of portfolios.
1. iShares Future AI and Tech ETF
The iShares Future AI and Tech ETF (ARTY +2.99%) includes stocks that are in some way involved in the advancement of AI technology -- from AI infrastructure to hardware and software to services and more. It contains 49 stocks, making it a relatively small and targeted fund.
Narrower ETFs like this one can carry increased risk, especially since AI is already a volatile industry. With only a few dozen stocks, this ETF is less diversified than many others.
NYSEMKT: ARTY
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That said, more targeted funds can also earn higher-than-average returns, as it's less likely that lower performers will dilute the ETF's overall earnings. Over the last year, the iShares Future AI and Tech ETF has earned a total return of around 30%, compared to around 18% for the S&P 500 (^GSPC +0.19%).
Many of this fund's holdings are small-cap stocks, which can be more volatile than their more established counterparts. However, they also have more room for explosive growth. If the AI sector continues to thrive, these stocks could be poised for significant returns.
2. Invesco Semiconductors ETF
The Invesco Semiconductors ETF (PSI +5.08%) is a different type of AI ETF, in that it's more focused on the foundations of the technology itself. Semiconductors are pivotal in the advancement of AI, especially as the high-powered computers behind the technology create more demand for specialized hardware.
This fund contains just 30 stocks from companies involved in the production of semiconductors. While semiconductors play roles in other industries besides AI, this subsector has experienced staggering growth in recent years
NYSEMKT: PSI
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Similar to the iShares Future AI and Tech ETF, this fund offers less diversification than many other funds. However, its narrow portfolio could result in higher returns over time. In fact, in the last year, the Invesco Semiconductors ETF has earned total returns of around 38%. Since its launch in 2005, it's earned a whopping 1,660% in total returns.
3. Vanguard Information Technology ETF
For those looking to capitalize on the AI wave while mitigating some of the risk and volatility involved in this sector, the Vanguard Information Technology ETF (VGT +0.29%) could be a fantastic option.
This fund isn't directly focused on AI stocks, but rather on the tech sector as a whole. It contains 322 stocks across all areas of the technology industry, providing ample diversification. While many of its top holdings -- including Nvidia, Micron Technology, and Advanced Micro Devices -- are heavily involved in AI, it contains hundreds of other stocks to help balance them out.
NYSEMKT: VGT
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While this ETF has still earned above-average returns, it's fallen below the other two AI-focused funds on this list. It's earned a total return of just under 22% over the last year, only slightly higher than the S&P 500's 18% in that time.
While this ETF's performance may be closer to average than other AI funds, its added diversification and broad exposure to the entire tech sector may be worthwhile trade-offs for many investors.
AI can be a potentially lucrative industry over the coming years, and investing in AI ETFs can be a smart way to buy into this sector without having to research dozens of individual stocks. By considering your goals and risk tolerance, it will be easier to determine which AI ETF is the best fit for your portfolio.
