2 Artificial Intelligence (AI) ETFs to Buy With the S&P 500 at an All-Time High

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The benchmark S&P 500 index is on a roaring bull run, continuing to set new record highs. It’s weighted by market capitalization, which means a mere handful of large technology stocks can heavily influence its performance, and they are responsible for a significant portion of its gains in the past year.

Nvidia is one of those stocks. It rocketed to a market cap of $3 trillion, making it the second-largest company in the world. It was worth just $360 billion at the start of 2023!

Artificial intelligence (AI) is responsible for most of Nvidia’s incredible value creation, but it isn’t the only stock benefiting from this technological revolution. Two exchange-traded funds (ETFs) hold some of the leading AI stocks that will likely continue propelling the S&P 500 higher.

Here’s why investors might want to buy the Roundhill Generative AI and Technology ETF (NYSEMKT: CHAT) and the iShares Expanded Tech Sector ETF (NYSEMKT: IGM).

1. Roundhill Generative AI and Technology ETF (CHAT)

Roundhill believes generative AI will drive a wave of productivity throughout the economy. Applications like ChatGPT have proven their ability to rapidly craft text, images, videos, and computer code on command, which is accelerating workloads across dozens of industries already.

The ETF owns stakes in 53 companies that are either developing AI hardware and software, or they’re likely to benefit from using the technology in their existing businesses. The ETF is heavily weighted toward its top 10 holdings, which account for 53.5% of the total value of its portfolio, and the list includes most of the leading AI stocks investors will want to own:

Stock

Roundhill Generative AI and Technology ETF Portfolio Weighting

1. Nvidia

14.57%

2. Microsoft

10.36%

3. Alphabet

5.35%

4. Meta Platforms

4.41%

5. Adobe

3.45%

6. Amazon

3.17%

7. ServiceNow

3.12%

8. Advanced Micro Devices

3.06%

9. Broadcom

3.06%

10. Oracle

2.97%

Data source: Roundhill. Portfolio weightings are accurate as of June 5, 2024, and are subject to change.

Developing advanced AI models wouldn’t be possible without Nvidia’s graphics chips (GPUs) for the data center. Demand is off the charts, which sent the company’s data center revenue surging 427% year over year to $22.6 billion in the first quarter of fiscal 2025 (ended April 28). That momentum looks set to continue in the near term.

Advanced Micro Devices recently launched a competing lineup of GPUs, and the chipmaker has also taken an early lead in the market for AI-powered personal computers.

Microsoft, Alphabet, and Amazon are home to three of the world’s largest cloud computing platforms. They each spend billions of dollars buying GPUs from Nvidia and AMD, and they rent that computing power to their customers, who use it to develop AI.

Outside of its top 10, the fund holds smaller positions in other popular AI stocks, including C3.ai, Micron Technology, and Palantir Technologies.

The ETF was only established in May 2023, but it has already delivered a return of 40%, crushing the 27% gain in the S&P 500 over the same period. Investors will pay a premium for those returns, however. Roundhill Generative AI and Technology has an expense ratio of 0.75%, which is the proportion of the fund deducted each year to cover management costs. It’s on the higher end of the industry — some ETFs have expense ratios as low as 0.1%.

With that said, Roundhill Generative AI and Technology is a great option for investors looking for long-term exposure to the AI boom. However, they should be aware that if AI fails to live up to the hype, this ETF is likely to underperform.

2. iShares Expanded Tech Sector ETF (IGM)

The iShares Expanded Tech Sector ETF is more diversified than the Roundhill fund. Its objective is to invest in technology hardware, software, interactive media, internet marketing, and related companies, so it isn’t beholden to the success of AI alone.

The ETF holds 278 stocks, but its top 10 positions account for 57.8% of the total value of its portfolio, so there is still some concentration risk. Its top 10 includes many of the businesses leading the AI race, because those companies happen to also dominate other segments like consumer devices, consumer software, social media, and more:

Stock

iShares Expanded Tech Sector ETF Portfolio Weighting

1. Nvidia

10.80%

2. Apple

9.47%

3. Microsoft

8.47%

4. Meta Platforms

7.90%

5. Alphabet Class A

5.79%

6. Alphabet Class C

4.89%

7. Broadcom

4.35%

8. Netflix

2.20%

9. Advanced Micro Devices

2.10%

10. Qualcomm

1.85%

Data source: iShares. Portfolio weightings are accurate as of June 5, 2024, and are subject to change.

The ETF has a healthy exposure to the leaders in AI chips through Nvidia and Advanced Micro Devices. But it also owns a large position in Apple, which has over 2.2 billion active devices worldwide, led by the flagship iPhone. That enormous installed base could soon make Apple the single largest distributor of AI software, because it’s negotiating with OpenAI and Alphabet to integrate their chatbots into its devices, which should create exciting new experiences for customers.

Meta Platforms is increasingly using AI-powered algorithms to recommend content on Facebook and Instagram, boosting engagement and increasing advertising revenue. The company also developed the world’s most popular open-source large language model (LLM) called Llama, which is the foundation for new AI features like the Meta AI chatbot.

Outside of its top 10 holdings, iShares Expanded Tech Sector also owns top cybersecurity stocks Palo Alto Networks and CrowdStrike, in addition to cloud stocks like Snowflake and Datadog. These companies are also using AI, but they have highly successful businesses to fall back on if their latest experiments don’t work out.

The ETF was established in 2001, and it has delivered a compound annual return of 10.6% since then. That’s better than the 7.9% average annual return in the S&P 500 over the same period. However, the proliferation of technologies like smartphones and cloud computing propelled the fund to an even better compound annual gain of 19.7% over the last 10 years.

iShares Expanded Tech Sector has an expense ratio of 0.41%, so it’s cheaper to own than the Roundhill ETF. Simply put, if AI continues to create significant value, iShares Expanded Tech Sector will keep delivering strong returns. But if AI doesn’t live up to its potential, there are hundreds of stocks in this ETF that should do just fine.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe, Advanced Micro Devices, Alphabet, Amazon, Apple, CrowdStrike, Datadog, Meta Platforms, Microsoft, Netflix, Nvidia, Oracle, Palantir Technologies, Palo Alto Networks, Qualcomm, ServiceNow, and Snowflake. The Motley Fool recommends Broadcom and C3.ai and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

2 Artificial Intelligence (AI) ETFs to Buy With the S&P 500 at an All-Time High was originally published by The Motley Fool