According to Morningstar data, over one-third of the approximately 24 ETFs featuring artificial intelligence or AI in their titles have been introduced in 2024 alone.
Recently, three additional ETFs have been launched, including a cloud computing ETF that has been rebranded and modified to specifically focus on AI. The total assets within the AI ETF category now stand at $4.5 billion, bringing it closer to the $5.5 billion market of nuclear power-themed ETFs and significantly surpassing the cannabis sector, which has $1.37 billion in assets.
Daniel Sotiroff, a senior analyst at Morningstar, expressed that the rapid growth of these funds is not surprising. "This is a fast-growing, fast-moving industry, and it is easy to hope that you could end up making a lot of money in a short period of time," he noted.
The impressive stock performance of Nvidia, which has seen gains exceeding 200% over the past year, likely reinforces this optimism, according to Sotiroff.
Looking beyond Nvidia, Tony Kim, head of the fundamental equities technology group at BlackRock, believes that AI will yield a wider array of beneficiaries in the future. Kim oversees the two new AI-focused ETFs launched by BlackRock on Tuesday: the iShares A.I. Innovation and Tech Active ETF and the iShares Technology Opportunities Active ETF.
BlackRock's first AI product, the $630 million iShares Future AI & Tech ETF, debuted in 2018 and is currently trading just below its 52-week high reached on October 14.
While the initial AI product is index-linked, the two new offerings are actively managed and aim to seize emerging opportunities within the AI landscape, as stated by Jay Jacobs, head of active and thematic ETFs at BlackRock.
The landscape of the AI market is poised for significant transformation, according to Kim. "What you perceive it to be today will not reflect its future state, whether that be tomorrow, next year, or in the coming years."
AI COMPETITION
Market analysts Ohsung Kwon and Savita Subramanian from BofA Securities recently reported that a competitive race in AI is unfolding among major tech players such as Microsoft and Amazon.com. They estimate that capital expenditures from four leading companies heavily investing in AI will reach $206 billion this year, marking a 40% increase compared to 2023. In contrast, they predict a slight decline in capital spending from the remaining 496 companies within the S&P 500.
Additionally, venture capital firms are projected to allocate up to $79.2 billion to AI startups by year-end, representing a 27% increase over 2023, as per estimates from venture firm Accel. This indicates that 40 cents of every dollar invested by venture capitalists will be directed towards AI enterprises.
However, investing in an AI-focused ETF does not ensure superior market performance. The largest AI fund, the Global X Artificial Intelligence & Technology ETF, has risen approximately 20% this year, compared to a 22% increase in the benchmark S&P 500.
Earlier this month, Amplify ETFs rebranded an existing cloud-computing ETF to emphasize its new focus on AI, renaming it the Amplify Bloomberg AI Value Chain ETF.
"We are now aiming to gain exposure to the cloud with a distinct AI perspective," stated Nathan Miller, vice president of product development at Amplify.
He further noted that the long-term objective is to be positioned to benefit when the substantial capital investments in AI begin to translate into earnings, while also staying ahead in recognizing emerging opportunities.
"Like every ETF provider, we are striving to present investors with something unique," Miller added.