There’s no question that artificial intelligence (AI) will be one of the dominant global themes for years, if not decades. In just the few short years since OpenAI‘s ChatGPT made its debut, it has become woven into almost every tool and process used in daily life.
Naturally, that has many investors interested in the theme. It’s a big reason why the “Magnificent Seven” stocks have done so well over the past few years. And it’s a big reason why many people have a large percentage of their portfolios dedicated to tech stocks.
But for investors who want more direct exposure to the entire AI theme without trying to pick and choose individual winners, the Roundhill Generative AI & Technology ETF (CHAT +1.21%) provides the best option. If you have cash sitting on the sidelines, here’s why I believe this exchange-traded fund (ETF) is a better choice than two of its big competitors, the Global X Artificial Intelligence & Technology ETF and the Invesco AI and Next Gen Software ETF.
Image source: Getty Images.
Key takeaways
- The AI market is currently $371 billion but is expected to grow to $2.4 trillion by 2032.
- According to Motley Fool research, nine out of 10 investors expect to maintain or increase their AI stock exposure over the next year.
- The Roundhill Generative AI & Technology ETF targets companies that derive at least 50% of their revenues from AI-related activities.
- The fund’s active management, concentrated pure-play strategy, and international exposure set it apart from its peers.
The macroenvironment for AI stocks is still positive
The biggest driver of the AI boom is and will likely continue to be capital expenditures. The biggest companies have already spent and/or committed tens, if not hundreds, of billions of dollars toward artificial intelligence development. As other companies all across the economic landscape develop their own infrastructure, revenue growth should rise rapidly. This is likely to continue for several years.
Tidal Trust II – Roundhill Generative Ai & Technology ETF
Today’s Change
(1.21%) $0.83
Current Price
$69.40
Key Data Points
Day’s Range
$68.81 – $69.99
52wk Range
$31.32 – $69.99
Volume
558K
The downside risk would be if all that spending doesn’t end up yielding a positive return on investment. We probably won’t be able to answer that question for a while, which takes some of that risk off the table for at least the near term.
How the Roundhill Generative AI & Technology ETF compares to other AI ETFs
| Metric | CHAT | AIQ | IGPT |
|---|---|---|---|
| 1-year return | +111% | +48% | +68% |
| Year-to-date return | +8% | -6% | +1% |
| Expense ratio | 0.75% | 0.68% | 0.56% |
| Management style | Active | Passive | Passive |
| Holdings | 45 | 84 | 100 |
| U.S. exposure | 58% | 68% | 80% |
| Weighting strategy | Active | Cap-weighted | Revenue-weighted |
Source: Fund documents. CHAT = Roundhill Generative AI & Technology ETF. AIQ = Global X Artificial Intelligence & Technology ETF. IGPT = Invesco AI and Next Gen Software ETF.
When you’re investing in a theme, I believe more concentrated, pure-play exposure is better. Invest more broadly, and you risk owning a watered-down portfolio of companies with only ancillary exposure to the theme.
That’s one of the reasons the Roundhill Generative AI & Technology ETF has the advantage. Active management is also an advantage in thematic investing, especially one as rapidly evolving as AI. The added international exposure is a reflection that AI is a global phenomenon, not just one linked to the United States.
Thomas DiFazio, ETF strategist at Roundhill, confirmed the same thinking. He said, “In our view, active management within the AI ETF space is critical. CHAT’s active management approach enables the fund to adapt in real time to the rapidly evolving AI landscape — adjusting exposure to leaders and laggards, capturing emerging growth opportunities without being constrained by fixed rebalancing schedules.”
If you have portfolio cash ready to be put to work in AI stocks, this ETF could be the best way to approach it.
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