2 Artificial Intelligence ETFs to buy before the stock market hits new highs

of S&P500 (SNPINDEX: ^GSPC) It confirmed the bull market that began when the index hit a record high earlier this year and bottomed in October 2022. But it is currently in the midst of a modest decline that began in late March as investors weather economic-related headwinds. inflation and interest rates.

History tells us that given enough time, the S&P 500 index always rises to new highs, considering that as of this writing the index is only 1.3% below its recent high close. , this looks like a typical bull market pullback. This provides investors with the opportunity to buy stocks at a discount, especially in hot sectors such as artificial intelligence (AI), which have soared over the past year.

Given the pace at which the industry is moving, predicting which AI stocks will perform best over the long term is difficult for even Wall Street’s most experienced analysts. Fortunately for investors, there is a simple solution.

Exchange traded funds are a great option

Exchange-traded funds (ETFs) can hold dozens or even hundreds of individual stocks from a particular sector of the market or to replicate the performance of a particular market index. They are ideal for passive investors because they are typically managed by a team of experts who adjust the portfolio as needed.

Because ETFs can hold so many stocks, the failure of one company won’t result in catastrophic financial loss, which is a great feature when investing in emerging technologies like AI.

There are currently several ETFs that can provide investors with exposure to the AI ​​boom. Here’s why: Round Hill Generative AI & Technology ETF (NYSEMKT: Chat) And that iShares Extended Tech Sector ETF (NYSEMKT:IGM) are two great options.

1. Roundhill Generative AI & Technology ETF

Generative AI has the potential to explode productivity across the global economy, thanks to applications like ChatGPT that can create text, images, video, and even computer code on demand. Roundhill ETF invests in companies that develop the infrastructure, platforms, and software to enable generative AI.

This ETF holds 52 different stocks, but the focus is on the top 10, which accounts for 51.4% of the total portfolio value.

Data source: Round Hill. Portfolio weights as of May 7th.

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Nvidia is a child of the AI ​​revolution. It manufactures the world’s most powerful graphics processing chips (GPUs) that can process large amounts of data so that developers can train their AI models. The company is now worth $2.3 trillion, of which about $1.5 trillion was generated in the past 12 months alone thanks to a 214% increase in its stock price.

Microsoft is the world’s largest company by market capitalization, and we have AI woven into our entire product portfolio. The company develops its own models, but last year agreed to invest $10 billion in OpenAI, the creator of ChatGPT, and is also leveraging that startup’s technology. Alphabet is also developing its own AI models under the Gemini banner, transforming its flagship platforms such as Google Search.

Adobe uses generative AI to power its creative software products like Photoshop. Similarly, Safeforce has developed an AI assistant called Einstein to help customers get more value from their customer relationship management tools.

The Round Hill ETF was only established in mid-2023, so it doesn’t have a long track record. It’s up 14.2% so far this year, outperforming the S&P 500 index, which is up 9.4%.

With such a concentration of AI stocks in this ETF, performance could suffer if the technology fails to live up to the hype. But for those looking for some exposure, this ETF could be a great addition to a diversified portfolio.

2. iShares Extended Tech Sector ETF

This iShares ETF has a relatively broad objective. It’s about investing in technology and technology-related companies that develop everything including, but not limited to, hardware, software, and internet marketing.

Therefore, the ETF’s portfolio of 278 stocks does not include AI’s name alone. However, the top 10 holdings account for 55.9% of the total portfolio, and that list includes some of the most popular AI stocks.

Data source: iShares. Weightings are accurate as of May 6th.

Apple has not been as aggressive about its AI efforts as other tech giants, but it could become one of the most important companies in the industry. The company’s iPhone 15 Pro is equipped with the Apple-designed A17 Pro chip, which the company says can handle AI workloads on the device.

This lays the groundwork for the integration of generative AI software, with Alphabet and OpenAI reportedly competing to have their chatbots installed by default on Apple’s 2.2 billion active devices in March.

However, despite its position at the top of the table above, Apple is not the iShares ETF’s largest holding. That title goes to Alphabet, whose Class A and Class C shares collectively represent 10.8% of the company’s total portfolio. As mentioned earlier, Alphabet’s powerful Gemini model brings generative AI to Google Search, but it can also be used to create content for popular products like Google Docs and his Gmail.

Beyond the top 10, the ETF also holds a number of other important AI stocks.They include: micron technologyThis makes memory and storage chips critical for AI workloads. cloud strikeis a leader in AI-powered cybersecurity software.

This ETF was founded in 2001 and has a long track record that gives investors some confidence. Since its inception, it has generated a compound annual return of 10.6%. With the proliferation of technologies such as software, cloud computing, and AI, this number has risen to 19.9% ​​over the past decade. Assuming AI lives up to the hype, there’s a good chance its benefits will continue for the foreseeable future.

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Alphabet executive Suzanne Frye is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Anthony Di Pizio has no position in any stocks mentioned. The Motley Fool has positions in and recommends Adobe, Advanced Micro Devices, Alphabet, Amazon, Apple, Baidu, CrowdStrike, Meta Platforms, Microsoft, Netflix, Nvidia, Salesforce, and ServiceNow. The Motley Fool endorses his Broadcom and recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.

2 Artificial Intelligence ETFs to Buy Before the Stock Market Hits New All-Time Highs Originally published by The Motley Fool