The S&P 500 is trading near its all-time high, posting an 18% gain in 2024 so far. The index is weighted by market capitalization, which means the largest companies have a greater influence over its performance.
Nvidia, for example, makes up 6.7% of the S&P 500, and the 167% jump in Nvidia's stock price this year is responsible for one-third of the entire gain in the index. In other words, investors who don't have exposure to Nvidia and its big-tech peers have likely underperformed the broader market.
Fortunately, exchange-traded funds (ETFs) offer a simple way to add that exposure to any portfolio. The Roundhill Generative AI and Technology ETF (CHAT -1.36%) holds every popular artificial intelligence (AI) stock, and investors can pick up a single share for under $40.
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Every popular AI stock packaged into one ETF
The Roundhill ETF was only established one year ago, so it's still a small fund, with just $211 million under management. Roundhill believes applications like OpenAI's ChatGPT will drive a productivity boom across the global economy, so its objective is to invest in the proponents of generative AI, which includes makers of everything from chips to software.
The ETF holds 57 different stocks right now, but it's heavily weighted toward its top 10 positions, which account for 44.5% of the total value of the fund. That list includes many of the most popular AI stocks among investors:
| Rank/Stock | Roundhill ETF Portfolio Weighting |
Rank/Stock | Roundhill ETF Portfolio Weighting |
|---|---|---|---|
| 1. Nvidia | 7.92% | 6. Baidu | 3.55% |
| 2. Microsoft | 6.32% | 7. Meta Platforms | 3.54% |
| 3. Alphabet | 5.9% | 8. SK Hynix | 3.35% |
| 4. Adobe | 3.9% | 9. Broadcom | 3.17% |
| 5. AMD* | 3.71% | 10. TSMC* | 3.14% |
Data source: Roundhill. Portfolio weightings are accurate as of July 15, 2024, and are subject to change. AMD = Advanced Micro Devices. TSMC = Taiwan Semiconductor Manufacturing.
Developing AI models wouldn't be possible without Nvidia's graphics processing units (GPUs) for the data center. The H100 GPU set the benchmark for the industry, but the company is gearing up to release a new lineup of chips based on its Blackwell architecture. The upcoming GB200 GPU will perform AI inference at a whopping five times faster than the H100, so demand will likely be through the roof.
Microsoft and Alphabet are weaving AI into their legacy products. Microsoft used OpenAI's GPT-4 models to build its Copilot virtual assistant, which is available on Windows, Bing, Edge, the Azure cloud platform, and 365 applications like Word and Excel. Alphabet created a family of AI models in-house called Gemini, which is accessible through Google Cloud and Google Workspace applications like Gmail and Docs and can also be used as a stand-alone chatbot.
Advanced Micro Devices is a competitor to Nvidia in the data center, but it also makes chips for AI-enabled personal computers and devices. It has established a leadership position in that segment, which could be extremely valuable as AI migrates into everyday life.
The Roundhill ETF owns a number of other popular AI stocks outside its top 10, including Amazon, Oracle, Apple, and C3.ai.
The Roundhill ETF is soaring, but beware of concentration risk
The Roundhill ETF is up 27% year to date, crushing the return of the S&P 500. That's no surprise considering it only holds AI and technology stocks, which have been the best-performing groups throughout 2024. Roundhill cites a forecast from Goldman Sachs that suggests AI could add $7 trillion to the global economy over the next decade, and if it proves to be accurate, this ETF should continue to outperform over the long term.
But beware of concentration risk, because if AI fails to live up to the hype, stocks like Nvidia and Microsoft could lose a substantial portion of their recent gains, which will lead to a period of underperformance for the ETF. Goldman Sachs published a new report last month expressing concerns because tech giants haven't shown meaningful revenue resulting from the significant amounts of money they have invested in AI development so far.
That payoff could arrive at some point in the future, but if investors plan to buy the Roundhill ETF, they should do so as part of a balanced portfolio.
