When you think of investing in artificial intelligence (AI), you may automatically think of a name that's consistently been making the headlines. I'm talking about leading AI chip designer Nvidia (NVDA -2.09%). The company's dominance in the market has helped earnings soar in the triple digits in recent quarters and has spurred a share-price gain of more than 200% in the past year.
That's impressive, and Nvidia has what it takes to continue increasing over time. But the ultimate long-term AI investment may not be in one stock but instead in many. This may sound intimidating because it involves identifying now the companies that down the road might become AI winners. The good news, though, is you don't have to do all of this heavy lifting yourself.
In the following investment, it's done for you -- meaning you don't have to lift a finger. Over time, you could benefit in a major way from the AI boom. Let's find out more about this AI investment you won't want to miss.
Image source: Getty Images.
Investing in many potential winners
So, how do you invest in a basket of potential stock market winners without picking the stocks yourself? You turn to an exchange-traded fund (ETF), one that follows a particular theme and trades on the market daily like an individual stock. In this case, we're looking for the AI theme, and you'll find it in the WisdomTree Artificial Intelligence and Innovation Fund (WTAI -1.53%).
This fund tracks the performance of WisdomTree's Artificial Intelligence and Innovation Index; the index and fund include today's leading AI players. You probably won't be surprised to hear that the fund's top position is Nvidia, weighted at more than 3%. But by investing here, you also get to bet on many other winners and potential winners. Other top holdings include Arm Holdings, Qualcomm, and Meta Platforms. Unsurprisingly, the information technology industry makes up more than 79% of the fund.
That said, the fund recognizes that potential AI winners populate a wide variety of industries, so it includes stocks from healthcare to industrials and consumer discretionary. By investing in the WisdomTree fund, you can benefit from a variety of AI success stories -- from the standout chipmaker to the pharmaceutical company developing potentially lifesaving drugs.
The pros and cons
Of course, there are pros and cons to everything, and here, two of the cons are as follows: First, with any ETF, it's important to remember that you will have to consider the fees associated with managing the fund. These expenses, if too high, could hurt your returns over time, so it's important to choose an ETF with an expense ratio of less than 1%. The WisdomTree fund's expense ratio is 0.45%, meeting this criterion.
The second point is that investing in an ETF is unlikely to produce the same level of returns you'll find in one or two winning AI stocks over a few years. Even though the WisdomTree fund holds Nvidia shares, for example, the weight of other shares comes into play too, so the ETF isn't skyrocketing along with the chip designer. On the other hand, this works to your advantage when one of the ETF's holdings drops: Gains by other shares limit your losses.
Now, let's move on to the big "pro" of investing in the WisdomTree ETF, and that's the idea of, as mentioned above, gaining access to many possible AI winners. In a short period of time, this may not result in a massive increase for the fund, but over time, as the AI growth story gains momentum, the performances of many of these AI companies could take off. As a result, the ETF's performance could follow.
So, yes, Nvidia and other companies with successful AI stories today make great investments. But over the long run, a tool that allows you to invest in many of these players could maximize your potential for gains and, at the same time, reduce your risk. And that's why today the WisdomTree Artificial Intelligence and Innovation Fund makes the ultimate AI growth investment.
