The buzz around artificial intelligence has spurred asset managers to launch a wave of AI-focused exchange-traded funds (ETFs), providing investors with fresh opportunities to tap into the growing enthusiasm for AI technology. This year alone, more than one-third of the two dozen ETFs featuring AI in their name were introduced, according to Morningstar data, reflecting an industry eager to meet demand for targeted investments in a rapidly evolving sector.
AI-themed ETFs have collectively amassed $4.5 billion in assets, approaching the size of the nuclear power-themed ETF market and significantly surpassing the cannabis sector. The trend shows no signs of slowing, with new funds joining the ranks every week. One recent example is Amplify ETFs, which rebranded its cloud computing fund to focus more heavily on AI, now named the Amplify Bloomberg AI Value Chain ETF.
The rapid gains of companies like Nvidia, which has seen a stock increase of over 200% in the past 12 months, likely add to investor optimism. Nvidia, known for its AI-driven graphics processing units, has fueled belief that AI could yield high returns over time, says Morningstar analyst Daniel Sotiroff.
AI’s potential extends beyond companies like Nvidia, as the technology is expected to shape a broad spectrum of industries over time. BlackRock, one of the largest asset managers globally, recently launched two actively managed AI ETFs: the iShares A.I. Innovation and Tech Active ETF and the iShares Technology Opportunities Active ETF. These funds are aimed at capturing a broader scope of emerging opportunities across industries influenced by AI.
Jay Jacobs, head of active and thematic ETFs at BlackRock, emphasizes that these products are designed to evolve with the technology. AI-related investments are poised for significant changes, making active management a strategic advantage. “The AI market is going to change dramatically,” says Tony Kim, head of BlackRock’s fundamental equities technology group. “What you think it is today, isn’t going to be what it becomes tomorrow or next year or in a few years.”
There is a large influx of funding to AI from private enterprises as well as venture capital firms. Analysts with BofA securities believe that four tech conglomerates which invested heavily on AI including Microsoft and Amazon are set to spend $206 billion this year, a 40% increase from the year 2023. Venture investment in AI startups is also projected at $79.2 billion of 40% of the Venture capital investments for the year 2024.
While AI ETFs present new opportunities, they aren’t a guaranteed route to market outperformance. The largest AI ETF, Global X Artificial Intelligence & Technology ETF, has gained around 20% this year—just under the S&P 500’s 22% rise.
However, asset managers like Amplify and BlackRock remain optimistic. Amplify’s VP of product development, Nathan Miller, underscores the importance of being well-positioned to capitalize on future gains from AI as the industry matures. “Like every ETF firm out there, we are trying to offer investors something differentiated,” Miller says.