1 A spectacular ETF that can help you capitalize on the artificial intelligence (AI) boom.

The Internet boom ended in a spectacular crash in the early 2000s, which taught investors that it is difficult to pick winners and losers during a technological revolution. Many companies are unable to survive once the dust settles, and only a few manage to thrive.

It is also difficult to predict what the economic landscape will look like in the coming years. When Amazon started using the Internet to sell books, she had no idea that most of her profits would eventually come from her cloud computing business – because it didn’t even exist at the time.

The current artificial intelligence (AI) revolution is likely to be no different. Semiconductor giants e.g Nvidia they are now creating incredible value from artificial intelligence. And yet some analysts predict that the software industry could soon become even bigger.

Instead of trying to pick AI winners and losers, investors could instead consider purchasing an AI-focused ETF. An ETF can hold dozens of different stocks, so one or two failures usually don’t result in catastrophic losses for the entire fund. Here’s why iShares Future AI and Tech ETF (PRETENTIOUS 0.21%) could be a great option.

Diversified AI fund

The iShares ETF was launched in 2018 with a focus on robotics and multi-sector AI, but in August it changed its name and restructured its holdings to better reflect its more focused goal of investing in companies at the forefront of the AI ​​revolution. This includes companies developing generative AI, AI infrastructure, AI software, AI data solutions, and more.

The ETF holds shares in 46 stocks, but is heavily concentrated in the 10 largest positions, which constitute 40.8% of the total value of its portfolio:

Data source: iShares. Portfolio weights are accurate as of September 27, 2024 and are subject to change.

Semiconductor stocks occupy the top five spots in the iShares ETF because that’s where most of the value is being created today. Nvidia supplies the industry’s most powerful graphics processing units (GPUs) to data centers for artificial intelligence development and is struggling to keep up with demand. Advanced Micro Devices is an emerging competitor to Nvidia, but the company has also established itself as a market leader in AI chips in the PC segment.

Broadcom, on the other hand, is a multi-faceted AI company. It produces custom AI accelerators (chips) for large tech giants and data center networking equipment such as Ethernet switches. Additionally, Broadcom subsidiaries are deploying artificial intelligence in cybersecurity, cloud and more.

However, the iShares ETF also has a diversified group of AI stocks beyond the hardware segment. For example, Meta Platforms created Llama, the most popular open-source large-language model (LLM), which it uses to develop new AI features for Facebook and Instagram. Another example is CrowdStrike, a leading provider of AI-powered cybersecurity software.

Outside of the top 10 positions, the iShares ETF holds key AI stocks such as MicrosoftAmazon, Taiwanese semiconductor productionand more.

Because it is a specialized fund, it is more expensive to hold than an ETF that simply tracks an index such as S&P500. The expense ratio is 0.47%, which is the portion of the fund that is deducted annually to cover management costs. For perspective, Vanguard S&P 500 ETF has an expense ratio of just 0.03%. There is no fixed fee for holding individual stocks, so investors should consider this cost before purchasing an ETF.

Potential for solid, long-term profits

The iShares ETF can be susceptible to volatility because it is so concentrated, meaning a small number of shares can have a significant impact on its performance. With this in mind, investors don’t have much historical data to analyze since the ETF in its current form is only two months old.

Looking ahead, spending on AI infrastructure is expected to continue to grow for at least the next year, which means stocks like Advanced Micro Devices, Broadcom, and Nvidia are likely to perform well for the foreseeable future. After crashing at 51% this year, Intel may also recover soon as it is rumored to be a takeover target, which could help the company regain some value.

AI software stocks such as Meta Platforms, CrowdStrike and Alphabet could also be a source of growth for ETFs in the coming year. Meta and Alphabet are trading at very attractive valuations, and 2025 could be a massive rebound year for CrowdStrike.

Overall, investors looking for exposure to the AI ​​industry should consider purchasing this ETF as an alternative to picking a group of individual AI stocks. However, it is important to do this within a balanced portfolio to protect against potential volatility.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Randi Zuckerberg, former chief market development officer and spokeswoman for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an Alphabet executive, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the companies mentioned. The Motley Fool holds positions on and recommends Advanced Micro Devices, Alphabet, Amazon, Arista Networks, CrowdStrike, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, Taiwan Semiconductor Manufacturing, and the Vanguard S&P 500 ETF. The Motley Fool recommends Broadcom and Intel and recommends the following options: January 2026 $395 long calls with Microsoft, January 2026 $405 short calls with Microsoft, and $24 short calls in November 2024 with Intel. The Motley Fool has a disclosure policy.