The AI Revolution: Riding the Wave with ETFs
In an impressive turn of events, the S&P 500 has achieved back-to-back annual total returns exceeding 25% in both 2023 and 2024. This remarkable performance has only occurred once before since the index’s inception in 1957—during the dot-com boom of 1997 and 1998. While technology played a vital role in propelling the market then, today’s driving force is artificial intelligence (AI). Major players in the tech industry, such as Nvidia, have led this surge, with Nvidia’s stock skyrocketing over 840% since January 2023, pushing its market cap to a staggering $3.4 trillion.
The Dot-Com Bubble: Lessons Learned
While the dot-com bubble taught investors valuable lessons about the risks in a rapidly evolving market, it also birthed industry giants like Amazon while many others faltered. The current AI boom promises to create success stories as well—yet, history suggests there may also be significant pitfalls. To minimize risk while still participating in this burgeoning sector, consider investing in an exchange-traded fund (ETF) that encompasses a diversified portfolio of AI stocks.
For under $50, you could grab a share of the Roundhill Generative AI and Technology ETF (CHAT), which is designed specifically for investors looking to tap into this tech revolution.
Top Holdings in the Roundhill ETF
Unlike other ETFs that hold thousands of stocks, the Roundhill ETF focuses on a more concentrated list of just 50 companies. This means it can be volatile, so it’s best suited for investors who already have a diversified mix of other stocks or ETFs in their portfolios. The ETF zeroes in on companies spearheading the development of AI technologies, from platforms and infrastructure to applications.
Here’s a look at the top five holdings within the Roundhill ETF, which reads like a who’s who of the tech world:
- Nvidia – 7.32%
- Alphabet – 5.67%
- Microsoft – 5.18%
- Meta Platforms – 4.22%
- Taiwan Semiconductor Manufacturing – 3.65%
Nvidia remains the leading supplier of graphics processors (GPUs) essential for AI data centers. With ambitious plans that include tapping into the autonomous vehicle and robotics markets, their position in the ETF looks solid. Meanwhile, Alphabet and Microsoft are also at the forefront, having developed their own AI technologies like chatbots and virtual assistants. Their cloud platforms, backed by Nvidia’s chips, are pivotal for businesses striving to create their own AI solutions.
The ETF also boasts other notable AI stocks like Amazon, Oracle, and Advanced Micro Devices, enriching its profile further.
Impressive Returns and Future Prospects
Launched in May 2023, the Roundhill ETF delivered a striking 31% return in 2024, outpacing the S&P 500—even after accounting for its 0.75% expense ratio. This impressive performance was largely due to an astounding average gain of 74% from its top five holdings.
Although it remains too concentrated to serve as a standalone portfolio, the Roundhill ETF has the potential to enhance the overall returns for a well-balanced investment mix. For instance, had you invested $10,000 in the S&P 500 at the start of 2024, you’d have seen it grow to approximately $12,502 by year-end. However, if you diversified your investment—allocating 70% to the S&P 500 and 30% to the Roundhill ETF—you’d end up with about $12,680. While the difference may not seem monumental in the short term, the power of compounding returns could yield significant benefits over the long haul.
Industry experts, inspired by forecasts from Goldman Sachs, anticipate that AI could contribute an astounding $7 trillion to the global economy by 2032. Hardware companies like Nvidia, Taiwan Semiconductor, and Broadcom are set to reap the benefits of this advancement, while major software entities, including Microsoft, Alphabet, and Palantir, will undoubtedly also see substantial gains.
Conclusion
In a world characterized by rapid technological change, the Roundhill ETF represents an enticing opportunity for investors eager to participate in the AI revolution. By offering exposure to leading companies in the emerging AI landscape, this ETF could be a valuable addition to your investment strategy if you’re looking to capitalize on the tech wave.
The AI Buzz Hub team is excited to see where these breakthroughs take us. Want to stay in the loop on all things AI? Subscribe to our newsletter or share this article with your fellow enthusiasts.
