The S&P 500 (SNPINDEX:$SPX) is in a raging bull market that dates back to October 2022. It continues to climb to new highs, and it has delivered a gain of 20% during the past 12 months alone. Technology stocks are leading the S&P higher, but those in the artificial intelligence (AI) sector have performed particularly well during the past year:
- Palantir Technologies is up by 369%.
- Nvidia is up by 85%.
- Broadcom is up by 78%.
Since the AI industry is still in its infancy, it's difficult to accurately predict which companies could be the winners and losers over the long term -- just because the above stocks were among the best performers of 2024 doesn't mean they will be flying high in a year's time. That's why investing in an exchange-traded fund (ETF) can be a great alternative to buying shares of a handful of individual companies.
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The iShares Future AI and Tech ETF (NYSEMKT:ARTY) holds stakes in 50 companies that are at the forefront of the AI boom, and investors can buy into it for as little as $40.
Image source: Getty Images.
The world's top AI stocks packed into one ETF
The iShares Future AI and Tech ETF was originally set up in 2018 to invest in robotics and AI stocks. However, it was reconfigured in August 2024 and now focuses exclusively on AI and all of its subsegments, including data center infrastructure, software, and services.
Though it holds 50 different stocks, its 10 largest positions account for 39.4% of the portfolio's total value. Although that creates some concentration risk because its results will be more heavily influenced by the performance of those companies, that list features some of the most prominent names in the AI race:
Stock | iShares Future AI and Tech ETF Portfolio Weighting |
|---|---|
1. Broadcom | 5.41% |
2. Arista Networks | 4.61% |
3. Palantir Technologies | 4.25% |
4. Vertiv Holdings | 4.07% |
5. Nvidia | 3.96% |
6. Super Micro Computer | 3.79% |
7. Constellation Energy | 3.65% |
8. Advanced Micro Devices | 3.63% |
9. International Business Machines | 3.05% |
10. Snowflake | 3% |
Data source: iShares. Portfolio weightings are accurate as of Feb. 6, 2025, and are subject to change.
Broadcom makes AI accelerators (a type of data center chip) on behalf of hyperscale customers like Alphabet, a business model that lets buyers customize their chips for specific workloads, and reduces their reliance on suppliers like Nvidia. Broadcom's AI revenue soared by 220% during its fiscal 2024 (which ended Nov. 3), driven by sales of data center chips and networking equipment.
Palantir is arguably the hottest AI story in the world right now. It developed a set of software products that use AI to help companies and governments extract the most value from their data. The company's revenue growth continues to accelerate, and despite a 369% surge in its stock during the past year, one Wall Street analyst predicts a further 300% upside is in the cards.
Despite Broadcom's surging chip sales, Nvidia remains the top supplier of high-end graphics processing units (GPUs) for data centers, and its new Blackwell architecture is the gold standard for training and powering AI models. But Nvidia is now preparing to dominate the next expected growth areas of the AI industry, including robotics and autonomous vehicles.
Finally, Constellation Energy deserves a special mention. AI data centers consume significant amounts of electricity, so tech companies are scrambling to find new sources of power. Constellation stock has surged by 136% during the past year thanks to the company's blockbuster deals to supply energy to data center giants like Microsoft.
Outside of its top 10 positions, the iShares ETF also holds stakes in other AI titans like Amazon, Meta Platforms, Microsoft, and Alphabet.
The iShares ETF could supercharge a diversified portfolio
The iShares Future AI and Tech ETF was reconstructed on Aug. 12, 2024, so it doesn't have a long track record in its current form. However, it has delivered a return of 27% since that date, which is more than twice the 13% return generated by the S&P 500 during the same period.
We can't draw any conclusions based on such a short time frame, but it highlights the broad strength of AI stocks at the moment. Consulting firm PwC thinks AI could add $15.7 trillion to the global economy by 2030, while Cathie Wood's Ark Investment Management asserts that it could boost labor productivity by a whopping $200 trillion. Either of those forecasts would indicate that the AI industry will maintain its momentum for several more years.
That said, this ETF could suffer a prolonged period of underperformance if AI fails to live up to expectations, because many of its biggest holdings like Broadcom, Nvidia, and Palantir would probably lose much of their recent gains.
That's why investors should buy the iShares ETF as part of a diversified portfolio of other funds and individual stocks. The ETF could supercharge your results if the sector continues to perform well, but if things don't pan out with AI, broader diversification will prevent it from having a catastrophic impact on your portfolio.
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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. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Arista Networks, International Business Machines, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, and Snowflake. The Motley Fool recommends Broadcom and Constellation Energy and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
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