Written by Suzanne McGee
(Reuters) – Artificial intelligence fever continues with AI as investors look for new ways to take advantage of the burgeoning technology following a breathtaking rally in market darlings such as Nvidia. This is causing a gold rush to ETFs.
The fund ranges from bouquets for AI’s biggest winners to more esoteric topics like robotics and sound generation. The total value of AI-themed ETFs traded in the U.S. jumped to $6.88 billion at the end of February, from $2.55 billion a year earlier, according to Morningstar data.
“The evolution of this category is still in its early stages, and investors are still weighing the possibilities,” said Will Lind, founder and CEO of GraniteShares.
The enthusiasm surrounding AI funds mirrors past waves of investor excitement over other technologies deemed transformative, from dot-com stocks to electric cars.
Each wave brought major new business to the economy and created incredible wealth for founders like Jeff Bezos and Elon Musk and ordinary investors. At the same time, many of the companies whose stock prices soared during past market booms ended up experiencing declines, a fate that may be in store for some of the most popular AI companies on the market today. .
So far, investors have responded with enthusiasm, and Nvidia, whose chips are considered the gold standard in AI, continues to garner attention.
The GraniteShares 2x Long NVDA Daily ETF, which seeks to double the daily return of chipmaker stocks, is not included in Morningstar data on AI-themed funds, but earlier this month its assets increased to 20. doubled to $1 billion. The move follows a nearly 80% rise in Nvidia stock so far this year, after the stock tripled in 2023.
The company unveiled the Blackwell B200, an AI chip that is up to 30 times faster than previous chips, at a developer conference on Monday.
Smaller ETFs are also doing well. Assets in the Themes Generated Artificial Intelligence ETF tripled to about $20 million from $7.5 million earlier this month, said Taylor Krystkowiak, investment strategist at Themes ETF.
Seven of the 18 diverse AI-related ETFs tracked by Morningstar were launched within the past three years. The eighth has been redesigned to more directly target AI.
Over the past 12 months, these funds have seen a total of $2.68 billion in inflows, according to Morningstar. This is nearly double the amount of inflows into real estate ETFs globally, the company said.
It’s unclear whether investor excitement about AI’s potential is fueling a bubble or simply contributing to the strong rally in stocks.
The S&P 500 index is up nearly 8% year-to-date, following a 24% rise last year, driven in part by gains in AI beneficiaries such as Nvidia and Microsoft. The enthusiasm for AI has also triggered parabolic moves in the stock prices of other companies, including his more than 250% rise in super microcomputers, which joined the S&P 500 this week.
Some investors appear to be limiting their exposure to Nvidia and other stocks that have made big moves. ETF issuer Global X found that the size of its Global X Artificial Intelligence and Technology ETF, which caps Nvidia exposure at 3%, has tripled in size over the past three months.
By comparison, robotics and artificial intelligence ETFs, which invest more than 20% of their assets in semiconductor manufacturers, grew 20%.
Rene Reyna, Invesco’s head of thematic ETF strategy and manager of Invesco’s AI and Next Generation Software ETFs, said some companies are focused on finding new areas to benefit from AI. .
“The conversations we have with investors are not focused on finding the next Nvidia, but recognizing that these technologies are changing the landscape and figuring out how to get a piece of this growth. We’re focused on finding out,” he said.
Morgan Stanley analysts last week released a list of 480 individual stocks that could benefit from AI. Less obvious beneficiaries include Walmart and Caterpillar. The bank also recommended considering “less crowded sub-themes” such as AI and smartphone integration.
ETFs are also working hard to offer products to suit every taste. The Robo Global Robotics & Automation ETF supplements its exposure to Nvidia with holdings of stocks expected to benefit from AI technology, such as Intuitive Surgical. The Roundhill Generative AI & Technology ETF focuses on companies expected to be beneficiaries of generative AI, including Salesforce.com and Marvell Technology.
Still, at least one flavor of AI-themed ETF has yet to find fans. The WisdomTree US AI Enhanced Value ETF, which uses AI to select portfolios, has lagged the S&P 500 with $48.26 million in outflows over the past 12 months.
One possible reason for the underperformance of this fund and others in its category is that many of them do not have positions in Nvidia or other AI-related stocks.
(Reporting by Suzanne McGee in New York; Additional reporting by Louis Krauskopf in New York; Editing by Ira Iosebashvili and Matthew Lewis)
