Investors have spent the past couple of years acquainting themselves with artificial intelligence (AI) and quantum computing. These emerging technologies could represent the most significant leaps forward for humankind since the internet decades ago.
Of course, such groundbreaking technologies can be lucrative investment opportunities. The Defiance Quantum ETF (NASDAQ:QTUM) could be a smart way to add exposure to artificial intelligence and quantum computing to your portfolio.
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The exchange-traded fund has plunged nearly 20% from its high amid the market's recent volatility, one of its steepest declines since it began trading in 2018.
Here are three reasons to buy this AI quantum computing stock on the dip.
1. Quantum computing and AI have significant growth potential
It's impossible to predict what AI and quantum computers could make possible over the coming decades. You might see things you only thought were possible in science fiction. Humanoid robotics is already on the way, which reminds me of a famous action movie from the 1980s featuring a particular cyborg sent from the future.
Plus, AI and quantum computing could eventually be worth trillions of dollars. Research from McKinsey estimates AI could generate $23 trillion in annual economic value by 2040. Meanwhile, quantum computing could start slowly. Technology experts have speculated that practical quantum computers could still be several years away.
However, they could be a game changer once they get here. Boston Consulting Group's report on quantum computing forecasts that quantum computers will create $5 billion to $10 billion in annual economic value by 2030, but projects this to increase to $450 billion to $850 billion by 2040. Time will tell how accurate such estimates and timelines are, but the financial and real-world potential is exciting, to put it mildly.
2. An ETF means you don't have to pick winners
AI and quantum computing present quite a challenge for investors. Most individuals, let alone professional investors, aren't experts in these complex fields.
Therefore, picking individual winners could prove extremely challenging. That's a great reason to invest in a diversified instrument such as the Defiance Quantum ETF. It represents a global basket of 70 companies involved with AI and quantum computing -- someone else did the hard work of picking high-quality stocks in these advanced technology industries.
The fund's top holdings include:
| Company | ETF Weight |
|---|---|
| D-wave Quantum | 3.31% |
| Orange | 2.37% |
| NEC Corp | 2.17% |
| Palantir Technologies | 2.15% |
| Koninklijke Kpn | 2.05% |
| Alibaba Group | 2.03% |
| Nokia | 1.93% |
| Northrop Grumman | 1.89% |
| Rigetti Computing | 1.87% |
| RTX Corp | 1.83% |
Data source: Defiance ETFs.
Since AI and quantum computing have immense potential but are still so unpredictable, casting a wide net is a wise strategy. It could be a case of the 80-20 rule, where a select few companies produce a majority of the value in AI and quantum computing.
The ETF's construction spans various companies, industries, and countries, reducing risk by limiting the top holding to just 3.31% of the fund's total assets. Additionally, the expense ratio (0.4%) appears reasonable, considering the simplicity and diversification you gain in return.
3. The Defiance Quantum ETF has outperformed the market
Many quantum computing stocks have been highly volatile, and investors who bought at the wrong time have endured steep losses.
The Defiance Quantum ETF has been around since 2018, and has outperformed the Nasdaq Composite, a prominent technology-leaning U.S. stock market index, since about 2021:
QTUM Total Return Level data by YCharts
Past performance does not guarantee future results, but it demonstrates the effectiveness of a diverse approach to speculative industries like AI and quantum computing. I don't see why the Defiance Quantum ETF can't continue to perform well as these technologies mature.
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Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Palantir Technologies. The Motley Fool recommends Alibaba Group and RTX. The Motley Fool has a disclosure policy.
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