Key insights
- The article suggests investing in the Roundhill Generative AI & Technology ETF (CHAT) for direct exposure to the AI theme, citing concentrated exposure and active management as advantages. It highlights the ongoing capital expenditures in AI development as a key driver, while acknowledging the risk of ROI failure. The ETF offers an alternative to picking individual AI stocks.
There's no question that artificial intelligence (AI) will be one of the dominant global themes for years, if not decades. In just the few short years since OpenAI's ChatGPT made its debut, it has become woven into almost every tool and process used in daily life.
Naturally, that has many investors interested in the theme. It's a big reason why the "Magnificent Seven" stocks have done so well over the past few years. And it's a big reason why many people have a large percentage of their portfolios dedicated to tech stocks.
But for investors who want more direct exposure to the entire AI theme without trying to pick and choose individual winners, the Roundhill Generative AI & Technology ETF (CHAT +1.21%) provides the best option. If you have cash sitting on the sidelines, here's why I believe this exchange-traded fund (ETF) is a better choice than two of its big competitors, the Global X Artificial Intelligence & Technology ETF and the Invesco AI and Next Gen Software ETF.
The biggest driver of the AI boom is and will likely continue to be capital expenditures. The biggest companies have already spent and/or committed tens, if not hundreds, of billions of dollars toward artificial intelligence development. As other companies all across the economic landscape develop their own infrastructure, revenue growth should rise rapidly. This is likely to continue for several years.
The downside risk would be if all that spending doesn't end up yielding a positive return on investment. We probably won't be able to answer that question for a while, which takes some of that risk off the table for at least the near term.
When you're investing in a theme, I believe more concentrated, pure-play exposure is better. Invest more broadly, and you risk owning a watered-down portfolio of companies with only ancillary exposure to the theme.
That's one of the reasons the Roundhill Generative AI & Technology ETF has the advantage. Active management is also an advantage in thematic investing, especially one as rapidly evolving as AI. The added international exposure is a reflection that AI is a global phenomenon, not just one linked to the United States.
Thomas DiFazio, ETF strategist at Roundhill, confirmed the same thinking. He said, "In our view, active management within the AI ETF space is critical. CHAT's active management approach enables the fund to adapt in real time to the rapidly evolving AI landscape -- adjusting exposure to leaders and laggards, capturing emerging growth opportunities without being constrained by fixed rebalancing schedules."
If you have portfolio cash ready to be put to work in AI stocks, this ETF could be the best way to approach it.