Investor excitement surrounding the potential of new advancements in artificial intelligence (AI) is helping drive the markets to new peaks. Specifically, the seven largest tech corporations by market capitalization — collectively referred to as the “Magnificent Seven” — are each following distinct paths along AI road maps.
Although much of the talk in AI is focused on these megacap tech companies, informed investors recognize that there are opportunities beyond this small group. The question: Which individual stocks provide the most profitable growth prospects? One potential way to address that challenge is to circumvent it. Index investing is a good choice for investors who desire exposure to AI in their portfolios but might feel overwhelmed by the numerous individual stocks.
The Global X Artificial Intelligence & Technology ETF (AIQ 1.45%) is an exchange-traded fund (ETF) that includes a variety of stocks that all capitalize on AI technology in some way. This approach could offer some lucrative long-term profits for patient investors.
Let’s explore the Global X Artificial Intelligence & Technology ETF and evaluate why now might be an interesting time to acquire some shares.
How does index investing function?
A common misunderstanding in the investment community is that you need to select individual stocks that consistently outperform the markets in order to build wealth. While picking specific stocks can lead to substantial long-term gains, there are also passive methods to approach the capital markets.
Index funds are an excellent way for investors to get started. These generally provide exposure to various stocks, each with a varying weight in the overall portfolio. This type of investing helps create a diversified portfolio without necessitating the heavy due diligence required for each holding. Even renowned (and experienced) investors such as Warren Buffett buy index funds to aid in diversifying their portfolio of individual stocks.
A distinct approach to investing in AI
What sets the Global X Artificial Intelligence ETF apart is that the fund consists of a balanced mix of growth stocks and more stable blue chip opportunities. Additionally, the ETF also includes positions in several companies that primarily operate overseas, offering a broad range of domestic and international prospects.
Some of the fund’s largest holdings include semiconductor manufacturer Nvidia, social media company Meta Platforms, e-commerce and cloud computing specialist Amazon, and streaming platform Netflix.
Although this is only a small sample of the total portfolio, investors can see that the Global X Artificial Intelligence ETF provides exposure to various sectors — each of which can be disruptive through the power of AI.
What can you anticipate from the Global X Artificial Intelligence & Technology ETF?
While AI is currently the most popular trend on Wall Street, it would be beneficial for investors to know that the Global X Artificial Intelligence & Technology ETF has been in existence since 2018. The table below presents the average annual returns for the fund as of Jan. 31.
|Average Annual Return
There are some important distinctions that should be noted here. First, the fund’s return over the last year was largely driven by the overall gains among tech stocks — particularly in the Nasdaq Composite.
Similarly, the three-year return of 5% might appear subdued. However, 2022 was a poor year for the capital markets, and tech stocks in particular experienced heavy selling. Both of these time periods are examples of abnormal returns.
The five-year return and the ETF’s overall return since inception portray a clearer picture of what investors could expect in the long run. While an annual return of 14% might not seem like much when compared to select individual stock performances, it is worth noting that this is only slightly less than double the long-term return provided by the S&P 500.
Viewed from another perspective, the Global X Artificial Intelligence ETF could very well present investors with a low-cost way to potentially surpass the market on a consistent basis over a long time horizon. Through the power of compounding, even a small investment of just a couple of hundred dollars each month could generate significant wealth over the long term.
Given the significant role AI will play in markets such as cybersecurity, cloud computing, enterprise software, and more, the Global X Artificial Intelligence & Technology ETF could be a fantastic opportunity to gain exposure to several high-growth areas while also providing a good level of risk mitigation through diversification.
Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Amazon, Meta Platforms, and Nvidia. The Motley Fool has positions in and recommends Amazon, Meta Platforms, Netflix, and Nvidia. The Motley Fool has a disclosure policy.