By Suzanne McGee
(Reuters) – Exchange-traded funds focused on artificial intelligence are proliferating as asset managers offer investors new ways to capitalize on the market’s enthusiasm for AI, even as it remains unclear which companies will emerge in the long term winners of the latest technology revolution.
More than a third of the two dozen ETFs that have artificial intelligence or AI in their names launched in 2024 alone, according to data from Morningstar.
In the past week, three more have joined their ranks, including a cloud computing ETF that has been rebranded and revamped to focus specifically on AI. The AI ETF group now has assets worth $4.5 billion, putting it closer to the $5.5 billion nuclear-themed ETF universe and well above the cannabis sector, with $1.37 billion in assets .
“I’m not surprised that their ranks are multiplying,” said Daniel Sotiroff, a senior analyst at Morningstar. “This is a fast-growing, fast-evolving industry, and it’s easy to hope you can make a lot of money in a short period of time.”
The more than 200% stock gain of chipmaker Nvidia (NASDAQ:) – the poster child for AI – in the past 12 months probably only confirms that confidence, Sotiroff said.
Beyond Nvidia, AI will likely deliver a larger and broader range of beneficiaries in the future, says Tony Kim, head of the fundamental equity technology group at BlackRock (NYSE:). Kim is the manager of the two new AI-themed ETFs launched by BlackRock on Tuesday, the iShares AI Innovation and Tech Active ETF and the iShares Technology Opportunities Active ETF.
The first of the company’s AI products, the $630 million iShares Future AI & Tech ETF, launched in 2018, is currently trading just below its 52-week high recorded on October 14.
While the original AI product is index-linked, the two new funds are actively managed and designed to capture emerging opportunities within AI, said Jay Jacobs, head of active and thematic ETFs at BlackRock.
“The AI market is going to change dramatically,” says Kim. “What you think today will not be what it will be tomorrow, next year or a few years from now.”
ARMS MATCH
BofA Securities market analysts Ohsung Kwon and Savita Subramanian said in a recent report that they believe there is “an AI arms race” between giant tech companies like Microsoft (NASDAQ:) and Amazon.com (NASDAQ:). They calculate that capital expenditures of four megacaps that are big bets on AI will total $206 billion this year, a 40% increase from 2023. Meanwhile, capital expenditures of the other 496 companies in the sector will decline slightly, they predict them.
Venture capital firms will also spend as much as $79.2 billion in funding on AI startups by the end of the year, 27% above 2023 levels, according to an estimate from venture capital firm Accel. That means 40 cents of every dollar invested by venture capital firms goes to an AI company.
Of course, investing in an AI-themed ETF does not guarantee market outperformance. The largest AI fund, the Global
Amplify ETFs earlier this month rebranded an existing cloud-computing ETF with a new focus on the emerging technology, calling it the Amplify Bloomberg AI Value Chain ETF.
“Now we’re trying to get exposure to cloud with a specific AI tilt,” says Nathan Miller, vice president of product development at Amplify.
The long-term goal, he added, is to be ready to turn a profit if and when all that capital spending on AI shows up in the profits, and to be at the forefront of identifying new opportunities.
“Like any other ETF company, we try to offer investors something differentiated,” Miller said.
