These 3 AI ETFs Have Been on a Rocket Ride Higher. Here’s Why I’d Skip Them All and Just Buy QQQ Instead.

The initial frenzy surrounding the artificial intelligence trade has officially collided with a massive dose of late-cycle macroeconomic reality. 

For the past few years, the public has treated AI-focused ETFs like a monolithic, unstoppable train. But a look under the hood of the top thematic funds reveals that the AI trade has violently fractured, turning a one-way momentum party into a highly volatile landscape of winners and losers.

So let’s look past the marketing material and evaluate a trio of ETFs that invest in AI-themed stocks. Here they are, side by side: 

I’ll review the mission and top set of holdings for each, as they differ greatly. You can tell that just from dispersion between the 1-year and 3-year returns for the trio. They all have more than $1 billion in AUM, so liquidity is not an issue. Some stick to more visible and known stocks to U.S. investors than others, which have a lot of non-U.S. holdings.  

AI ETF #1: Global X Artificial Intelligence & Technology ETF (AIQ) 

Strategy: Broad-spectrum enterprise integration. AIQ buys the chipmakers, but it also allocates assets across the entire global AI lifecycle. That includes software, cloud infrastructure, and hardware firms that are actively implementing AI to expand corporate margins. Other than a few prominent Asian companies in the top 10 holdings, this one looks a lot like the Invesco QQQ Trust (QQQ) in its stock membership. 

Performance: For that reason, cash-generating mega-cap hyperscalers drive this, not pure-play semiconductor startups. That’s great when hyperscalers act as relatively defensive plays. However, as I’ve warned here before, the potential is growing that we get a backlash against those behemoths. AIQ would be vulnerable in that case. 

AI ETF #2: Global X Robotics & Artificial Intelligence ETF (BOTZ) 

Strategy: Pure-play industrial automation and robotics. BOTZ moves further down the application “food chain” so to speak, bypassing generic software firms to focus aggressively on companies leveraging AI for physical automation, industrial machinery, surgical robotics, and autonomous vehicles.

Performance: BOTZ has been a bumpy ride so far, as I’ve seen personally when I owned it. With BOTZ, the underlying holdings are heavily exposed to global manufacturing capex. And as opposed to AIQ, the U.S. vs. international equity exposure is essentially inside out, with BOTZ having a decidedly non-U.S. stock emphasis. More than half of its current assets are in Asia alone. 

AI ETF #3: Invesco AI and Next Gen Software ETF (IGPT) 

Strategy: High-beta software and next-generation design. IGPT was the last to debut and it is the only one with more than 100 holdings. Still, just 10 of them account for nearly two-thirds of AUM. And it looks very QQQ-ish, with Micron (MU) now in the top spot and Intel (INTC) and some Mag 7 names right behind it.

Performance: IGPT has been at the epicenter of intraday drama and headline volatility, given those top holdings. When market sentiment is in a full-blown, risk-on phase, this ETF achieves vertical, jaw-dropping rallies fueled by sheer retail and momentum chasing. However, because many of these next-gen software names trade at extreme sales multiples and are burning massive amounts of cash to fund their R&D pipelines, there’s a long-term risk of earnings erosion. That spending needs to produce ROI, not just AI, if you will. 

The Bottom Line 

BOTZ forces me to do a lot more homework on stocks I’m not used to tracking, so taking a new position in it is not on my radar currently. AIQ and IGPT share several large holdings, but they only overlap about 30% in asset weight terms. That means I can chart them and choose the best one as my current favorite.

When I do that, AIQ gets a slight edge. But I’d caution anyone considering this space to really convince yourself that you are up for the challenge of holding one of these through a bubble-busting AI event. 

Here’s the real story to me. AIQ, IGPT and QQQ have all been around since May 11, 2018, more than eight years now. IGPT lagged during most of that time, but made up for it recently, which brings both of the AI-focused funds to within a shade of QQQ’s performance over that extended period. So to me, I’d rather stick to QQQ if I’m going to pursue the AI trade. 

At the time of this writing, Rob Isbitts owned QQQ through shares, call, and put options. 

Rob Isbitts created the ROAR Score, based on his 40+ years of technical analysis experience. ROAR helps DIY investors manage risk and create their own portfolios. For Rob’s written research, check out ETFYourself.com.