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Top AI ETFs for 2024: A Once-in-a-Lifetime Investment Opportunity
Artificial intelligence (AI) has become an integral part of our daily lives, from virtual assistants like Alexa and Siri to facial recognition on our phones and personalized product recommendations on Amazon. Over the past year, the advancement of AI technology, particularly with the rise of chatbots and large language models such as GPT-3, has driven significant demand for high computing power, primarily provided by GPUs. This surge in demand has contributed to a near 200% increase in Nvidia's stock over the past year.
In this article, we'll explore the top high-growth AI Exchange Traded Funds (ETFs) that can help investors capitalize on the AI boom. Unlike previous analyses, we'll cover the technology adoption lifecycle and include leveraged ETFs for those seeking higher returns.
Understanding the AI Technology Adoption Lifecycle
The technology adoption lifecycle for AI can be divided into three main phases:
- Semiconductors (Foundation)
- Infrastructure (Buildup)
- Applications (Growth)
Phase 1: Semiconductors
Semiconductors form the foundation of AI technology. Companies like Nvidia, Micron, Intel, and AMD are pivotal in this phase. The growth of these companies is expected to continue for several years, driven by the increasing demand for AI computing power.
Top Semiconductor ETF: VanEck Vectors Semiconductor ETF (SMH)
- Symbol: SMH
- Strategy: Holds the top 26 companies involved in semiconductor production and equipment.
- Key Holdings: Nvidia, Taiwan Semiconductor, Broadcom, Qualcomm.
- Performance: Year-to-date return of 38%, with five-year annualized returns of 38.9%.
Nvidia, a significant holding in this fund, has seen its stock rise from $800 to nearly $1,200, with some analysts predicting it could reach $1,500 by year-end. The company's data center business alone reported over $10 billion in sales in Q2, an increase of 171% year-over-year, with net income surging over 800%.
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Phase 2: Infrastructure
The buildup of infrastructure involves companies that provide the necessary platforms and services for AI. These companies include tech giants like Apple, Amazon, and Meta. While the growth in this phase may take years to materialize fully, it presents a compelling long-term investment opportunity.
Leveraged ETF: ProShares Ultra Semiconductors (USD)
- Symbol: USD
- Strategy: Seeks daily results that correspond to two times the daily performance of the Dow Jones Semiconductors Index.
- Performance: Year-to-date return of 127%, with five-year annualized returns of 72%.
Leveraged ETFs like USD offer magnified gains, but they also come with increased risk. The fund's beta is high at 3.21, indicating significant volatility. However, for investors seeking high returns and willing to monitor their investments closely, this fund can be a lucrative option.
Phase 3: Applications
The final phase focuses on applications and software services that utilize AI technology. Companies such as OpenAI, Palantir, and Microsoft are leaders in this space. These companies are expected to experience substantial growth as AI technology becomes more integrated into various industries.
Innovative ETF: Clockwise Core Equity and Innovative ETF (TIME)
- Symbol: TIME
- Strategy: Invests in companies that save people time through innovation and AI.
- Top Holdings: Nvidia, Spotify, Apple, Meta.
- Unique Feature: Holds 10% in T-bills, providing regular revenue.
- Performance: Year-to-date return of 25%, with a one-year return of 46%.
The TIME fund also generates revenue through writing call options against its holdings, resulting in a high dividend yield of 16.5%. Despite a high expense ratio of 1%, the fund's innovative approach and high dividends make it an attractive option for income-focused investors.
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Exploring Additional High-Growth AI ETFs
In addition to the aforementioned ETFs, several other funds offer exposure to the AI sector:
Bank of Montreal MicroSectors FANG+ Index 3X Leveraged ETN (FNGU)
- Symbol: FNGU
- Strategy: Holds equally weighted 10 top AI stocks, leveraged three times.
- Performance: Year-to-date return of 57%, with a one-year return of 100%, and a five-year annualized return of 68%.
iShares US Technology ETF (IYW)
- Symbol: IYW
- Strategy: Provides exposure to US computer software and hardware companies in the IT sector.
- Top Holdings: AMD, Salesforce, Adobe, Oracle.
- Performance: Year-to-date return of 14%, with consistent returns over the one, three, and five-year periods.
Despite its higher expense ratio of 0.4%, IYW has consistently outperformed many other tech funds, including Vanguard's VGT, making it a reliable choice for long-term investors.
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Conclusion
The AI revolution is poised to transform industries and economies globally, offering substantial investment opportunities. By understanding the AI technology adoption lifecycle and strategically investing in ETFs that cover different phases of this cycle, investors can maximize their returns while mitigating risks.
The VanEck Vectors Semiconductor ETF (SMH), ProShares Ultra Semiconductors (USD), Clockwise Core Equity and Innovative ETF (TIME), Bank of Montreal MicroSectors FANG+ Index 3X Leveraged ETN (FNGU), and iShares US Technology ETF (IYW) are some of the top ETFs to consider for those looking to capitalize on the AI boom.
As always, it's essential to conduct thorough research and consider your risk tolerance before making any investment decisions. Happy investing!
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- Author:Jiroop
- URL:https://jiroop.com/article/top-ai-etf-2024
- Copyright:All articles in this blog, except for special statements, adopt BY-NC-SA agreement.
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