Investing in Artificial Intelligence (AI) Stocks Can be Risky, but This Might be a Great Way to Do It
Key Points
AI stocks have helped the overall stock market rise over the past few years, but their prices are becoming more unpredictable.
Choosing which AI companies will succeed or fail is difficult, so most investors may be better off buying an exchange-traded fund (ETF).
The iShares Future AI and Tech ETF owns shares in 50 leading AI companies, helping investors avoid having to guess which stocks will perform best.
OpenAI launched its ChatGPT application in November 2022. It gained 100 million users within just a few months, marking the start of the artificial intelligence (AI) boom.
Since then, many stocks in the chipmaking, cloud computing, and software industries have delivered huge gains, helping the overall stock market rise.
But stock prices are becoming more unpredictable as investors question whether the boom in spending on AI infrastructure can continue. Almost every AI stock is falling, including some of the strongest companies in the industry:
- Nvidia stock is down 10% from its all-time high, based on the market close last Friday, Oct. 16.
- Alphabet stock is down 15% from its high.
- Advanced Micro Devices stock is down 18% from its high.
- Micron Technology stock is down 28% from its high.
- SanDisk Corp stock is down 44% from its high.
Stock market declines are a normal part of investing. However, investors who want to reduce their exposure to large price swings may want to consider an exchange-traded fund (ETF), such as the iShares Future AI and Tech ETF (NYSEMKT: ARTY). It owns shares in 50 leading AI companies, so investors do not have to guess which companies will win or lose. Read on to learn more.
Image source: Getty Images.
A diverse collection of AI stocks
The iShares Future AI and Tech ETF aims to give investors access to the entire AI industry, including the equipment needed to run AI, AI software, and AI services. Here are some of its most notable investments in each of these areas.
Infrastructure
- Nvidia makes the world's leading graphics processing units (GPUs) for data centers. These chips are the main processors used to train AI systems and run them to produce results. Nvidia has just started shipping its new Vera Rubin systems, which will be used by every major AI research company, including OpenAI and Anthropic.
- Advanced Micro Devices has become one of Nvidia's biggest competitors in the market for data center GPUs. It is also a leading company in AI-powered personal computers, thanks to its Ryzen AI processors for desktop and laptop computers.
Software
- Microsoft created Copilot, a virtual assistant that is now built into established software products such as Windows, Edge, and the Microsoft 365 apps Word, Excel, and Outlook. It can help people complete tasks faster and answer questions about many different subjects.
- Palantir Technologies created a group of software products that help private companies and government organizations use AI to get more value from their data.
Services
- Accenture is a global consulting company that helps businesses redesign their business models and important work processes around AI to improve efficiency. It works with clients from the beginning, helping them build the data systems and rules needed to use AI successfully.
- Snowflake offers a growing range of cloud services that help businesses use their own valuable data to build powerful AI software.
Other notable AI stocks held by the iShares ETF include Taiwan Semiconductor Manufacturing, Broadcom, Micron Technology, and Space Exploration Technologies.
The iShares ETF is beating the market right now
The iShares Future AI and Tech ETF was first created in 2018 to invest in AI and robotics. In August 2024, its investment focus was changed to AI alone. This means investors do not have a long history of results to study when deciding whether to invest in the fund.
Even so, the ETF's value has soared by 130% since the change, far outperforming the S&P 500, which gained 44% over the same period.
However, investors should never put all their money into an ETF that focuses on just one part of the stock market. Concerns are growing about whether the AI spending boom can last, as funding becomes harder to secure, especially on favorable terms. Even leading companies are being affected. Anthropic is now expected to go public at a value of $1.5 trillion, down from earlier expectations of $2 trillion. If these problems continue, the iShares ETF could suffer a steep drop in value.
Fees are another factor to consider. The iShares ETF charges an annual expense ratio of 0.47%. That means investors pay $47 a year for every $10,000 they invest. This may not seem like much, but it is about 15 times more than the fee for a passive index fund from Vanguard, for example, which can charge as little as 0.03% a year.
The iShares ETF charges more because its portfolio is actively managed. Instead of simply following a market index, a team of professionals regularly buys and sells stocks based on which investments they believe will earn the best returns. This approach can produce strong results, but it also costs more.
Overall, the iShares Future AI and Tech ETF could be a good addition to a diversified investment portfolio that does not already have much exposure to AI. However, it should not be an investor's only investment.
Should you buy shares in the iShares Future AI & Tech ETF right now?
Before buying shares in the iShares Future AI & Tech ETF, consider the following:
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Anthony Di Pizio does not own shares in any of the stocks mentioned. The Motley Fool owns shares in and recommends Accenture Plc, Advanced Micro Devices, Alphabet, Broadcom, Micron Technology, Microsoft, Nvidia, Palantir Technologies, Snowflake, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends these options trades: buying January 2028 $260 call options on Accenture Plc and selling January 2028 $280 call options on Accenture Plc. The Motley Fool has a disclosure policy.