There could be many winners and losers from the AI boom. Here’s how I’m setting my portfolio up for success.
If you’ve been following the stock market at all, you know that artificial intelligence (AI) is one of the most exciting trends right now. Many of the top AI stocks, such as Nvidia, AMD, and Alphabet, have pulled back considerably from their recent highs, so it could be a great time to get some AI exposure if you missed out on the first boom.
I don’t have much AI exposure in my portfolio. I have a few stocks in companies that should benefit from AI in one way or another, but I own none of the chipmakers, AI software companies, or other businesses that I would consider to be direct AI plays.
The biggest reason is that AI stocks aren’t really my specialty. I consider myself to be very good at analyzing and evaluating banks and real estate stocks, so they make up a lot of my portfolio. However, I want some AI exposure, and I plan to get it through exchange-traded funds, or ETFs. I plan to open small positions in two AI-focused ETFs over the next few weeks, one of which is a passive index fund and another that is actively managed.
An AI index fund
The first of the two is the iShares Future AI & Tech ETF (ARTY 0.15%). This is an ETF that is designed to track an index of companies that directly contribute to generative AI, AI data, AI infrastructure, or AI software and services. It has a 0.47% expense ratio, which is higher than many index funds, but reasonable for one that is so specialized.
The ETF owns 49 stocks in its portfolio as of the latest information, and its top holdings probably won’t be a big surprise. Broadcom, Nvidia, and AMD make up the top three. No stock makes up more than 6% of the portfolio, so this is a pretty diversified index fund.
With about $600 million in net assets, this is a relatively small index fund, but it is a solid pure-play on AI technology that has a significantly lower expense ratio than most comparable ETFs.
A hand-picked AI portfolio
The other AI-focused ETF I’m looking at is the Ark Autonomous Technology and Robotics ETF (ARKQ 1.38%), which is managed by Cathie Wood’s Ark Invest.
This ETF has a little under $800 million in net assets, and as mentioned, it is an actively managed fund — meaning that Wood and her team are hand-selecting stocks they feel will outperform the relevant benchmarks. Because of its active management, it has a slightly higher (0.75%) expense ratio, but this is quite reasonable for such a specialized, actively managed fund.
Now, this isn’t an AI pure-play ETF. It invests in a variety of technologies, most of which should benefit from AI advancement. These include robotics, intelligent devices, autonomous vehicles, and next-generation cloud computing, just to name a few.
The fund is rather concentrated, with the top three holdings — Tesla, Teradyne, and Kratos Defense & Security — making up about 32% of assets. In a nutshell, I like the iShares ETF to get a broad-based portfolio of AI stocks, and the Ark ETF to invest in the companies that stand to benefit the most from the evolution of AI.
I’ll start by taking a nibble
To be perfectly clear, these are going to be relatively small positions in my portfolio — at least at first. I still think many AI stocks are a bit on the pricey side, so because I’m approaching these as long-term investments, I plan to gradually build a position over time. This way, I’ll have some immediate exposure, but if the market sells off again, I can take advantage and add shares at a cheaper price.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Matt Frankel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Nvidia, and Tesla. The Motley Fool recommends Broadcom and Teradyne. The Motley Fool has a disclosure policy.
