The S&P 500 (^GSPC -1.11%) index has been on an absolute tear over the last couple of years. In fact, it's currently on track to deliver a back-to-back annual gain of 20% or more for the first time since 1999.
Technology stocks are leading the index higher, but those in the artificial intelligence (AI) space have generated especially powerful gains. Nvidia stock, for example, is up by a whopping 188% this year.
AI could add $15.7 trillion to the global economy by 2030, according to PwC, so it's shaping up to be an incredible financial opportunity for companies operating in the space. However, picking individual winners and losers won't be easy, so buying an exchange-traded fund (ETF) focused on AI stocks might be the best way for investors to capture value.
The iShares Future AI and Tech ETF (ARTY -1.28%) is a highly concentrated fund packed with some of the most popular AI stocks in the market right now -- and investors can buy it with as little as $40.
Image source: Getty Images.
Nvidia and Palantir are just two of the top holdings in the iShares ETF
The iShares ETF was established in 2018 with a focus on robotics and AI stocks, but it changed its name and its objective in August 2024. Now, it aims to give investors highly targeted exposure to companies developing generative AI, AI software, AI services, and AI infrastructure.
The ETF holds just 47 stocks, so it's highly concentrated. Plus, its top 10 holdings alone account for 42.4% of the value of its entire portfolio, and that list features some of the most popular AI stocks in the market right now:
|
Stock |
iShares ETF Portfolio Weighting |
|---|---|
|
1. Nvidia |
5.83% |
|
2. Broadcom |
5.43% |
|
3. Palantir Technologies |
5.32% |
|
4. Super Micro Computer |
4.72% |
|
5. Advanced Micro Devices |
4.43% |
|
6. Snowflake |
3.88% |
|
7. CrowdStrike |
3.50% |
|
8. Fortinet |
3.14% |
|
9. Meta Platforms |
3.11% |
|
10. Arista Networks |
3.07% |
Data source: iShares. Portfolio weightings are accurate as of Dec. 6, 2024, and are subject to change. Table by author.
Nvidia supplies the most popular graphics processing units (GPUs) for data centers, which are used to develop AI models. The company's data center revenue grew by triple-digit percentages in each of the last six quarters as demand continues to outstrip supply. It recently launched its new Blackwell GPUs, which offer a substantial leap in performance, and CEO Jensen Huang says demand is "staggering," so the company's momentum should roll on from here.
Then there is Palantir, one of the hottest AI software stocks of 2024, with a year-to-date gain of 337%. Palantir helps companies and governments organize their data, and it uses AI to identify patterns and even recommend actions they can take based on what the data shows. However, investors should be cautious if they are thinking about buying Palantir stock, because it's wildly expensive right now.
Advanced Micro Devices (AMD) has emerged as one of Nvidia's top competitors in the market for data center GPUs. However, it's also a leading supplier of AI chips for personal computers, which could be a significant growth opportunity in the coming years.
CrowdStrike, on the other hand, is a top cybersecurity company that embedded AI into its platform to automate threat hunting, incident response, and everything in between. Similarly, Meta Platforms is developing new AI features for its Facebook and Instagram social networks. The company also built the world's most popular open-source large language models (LLM) called Llama, which have been downloaded more than 600 million times.
Outside its top 10 positions, the iShares ETF holds a number of other top AI stocks, including Amazon, Alphabet, Microsoft, and Oracle.
The iShares ETF will be a great addition to any balanced portfolio
Since the iShares ETF was only reconstructed on Aug. 12, it doesn't have much of a track record for investors to analyze. It has delivered a very strong gain of 25% since that date, though, which is almost twice the 13% gain generated by the S&P 500 over the same period.
I'm not suggesting that's a sign of things to come, because the time frame is far too small for us to draw conclusions. However, it does speak to the strength of AI stocks right now.
This ETF should perform extremely well for as long as AI remains a dominant theme in the stock market. However, it could suffer significant losses if the technology fails to live up to the estimates issued by firms like PwC over the long term, because its holdings are so concentrated.
That's why investors should only buy this ETF as part of a balanced portfolio of other funds and individual stocks -- preferably one that doesn't already have significant exposure to the AI boom.
