Investing in artificial intelligence can be daunting for the retail investor. For starters, artificial intelligence is still in its early stages. That can make it difficult to have conviction about which companies are trendy and which are transformative. If you’re wondering how to gain exposure to AI while minimizing volatility, you may want to consider one of the best artificial intelligence ETFs.
This past earnings season, companies that mentioned AI saw their stock price go up an average of 4.6%. However, many of these companies have valuations that look out of whack by traditional metrics. And that statement assumes the company has profitable earnings. Many of the names in this sector are not profitable.
Despite that concern, including how to manage the growth of AI, this is a sector that has a long runway. Grand View Research estimates that the AI industry will grow from being a $197 billion industry today to a $1.8 trillion industry by 2030.
That’s the kind of growth you should have exposure to, especially if you have a long-term outlook.
But how to do it? Investing in individual stocks like Nvidia (NASDAQ:NVDA) or Microsoft (NASDAQ:MSFT) is certainly an option. But you’ll be paying a lot per share for both, which may prevent you from capturing the broad growth in the sector.
A different option is to buy shares in an exchange-traded fund (ETF) focused on the AI sector. As you’ll see, these funds may not be the cheapest in the sector, but they offer broad exposure to the sector in a way that smooths out the inherent volatility in AI.
Global X Robotics & Artificial Intelligence Thematic ETF (BOTZ)
When you think about the best artificial intelligence ETFs, a fund like the Global X Robotics & Artificial Intelligence Thematic ETF (NASDAQ:BOTZ) comes to mind. Over 75% of the fund’s holdings give investors exposure to three broad sectors: technology, industrials, and healthcare. Not surprisingly, these are three areas where the benefits and monetization of AI will be most obvious.
The fund offers a mix of large-cap stocks like Nvidia – its top holding and small-cap stocks like SoundHound AI (NASDAQ:SOUN). That may also explain the fund’s performance which closely matches the performance of many AI stocks. Shares of the fund are up 18% in 2023 but are down 15% in the last three months.
And like many AI stocks, you’ll be paying a bit of a premium to own this fund. Its expense ratio is 0.68%. However, investors may find that premium acceptable to own shares of a fund that’s up nearly 30% in the last 12 months.
iShares Exponential Technologies ETF (XT)
Next up on this list of the best artificial intelligence ETFs is the iShares Exponential Technologies ETF (NASDAQ:XT). As its name suggests, the fund deals in technologies that have the potential to provide investors with exponential returns. As it relates to AI, that means investing in companies in cloud computing and in the hardware needed to expand the capabilities of generative AI.
Like the BOTZ ETF, this has heavy exposure in technology and healthcare – over 64%. However, this fund is heavier in the software area. The fund also gives investors exposure to Meta Platforms (NASDAQ:META) and Palantir (NYSE:PLTR).
The fund’s expense ratio of 0.46% may be a bit more digestible for fund investors. And the fund does pay a dividend with a current yield of 0/57%.
Consumer Discretionary Select Sector SPDR Fund (XLY)
The last of my picks for the best artificial intelligence ETFs is the Consumer Discretionary Select Sector SPDR Fund (NYSEARCA:XLY). At first glance, you may question the pick, but this is a time when you shouldn’t just a book by its cover. Or in this case, a fund by its name.
Consumer discretionary doesn’t bring to mind fields like robotics or machine learning, but this fund does. For example, the XLY ETF’s top two holdings are Tesla (NASDAQ:TSLA) and Amazon (NASDAQ:AMZN). These are companies that will be on the cutting edge of AI for years to come.
And the fund also includes names like McDonald’s (NYSE:MCD) and Domino’s Pizza (NASDAQ:DPZ). In 2019, McDonald’s bought the Israeli start-up Dynamic Yield for $300 million. This allows McDonald’s to make, and change, menu items based on weather, time of day, and store traffic. Domino’s recently announced a partnership with Microsoft in which the latter will help provide generative AI solutions for “personalized orders and simplified store logistics.”
Those are just two examples. And the fund has an expense ratio of just 0.10% and even pays a dividend with a 0.91% yield.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
