Market Analysis

To capitalize on the excitement surrounding AI, asset managers introduce new ETFs

Amos Simanungkalit · 28 Oct 202419.8K Views

Artificial intelligence (AI)-focused exchange-traded funds (ETFs) are rapidly expanding as asset managers create new investment opportunities to capture the rising interest in AI, even though it remains uncertain which companies will ultimately lead in this tech revolution.

Over one-third of the approximately 24 AI-related ETFs available today were launched in 2024, per Morningstar data. In the past week alone, three additional funds were introduced, including a revamped cloud computing ETF now centered on AI. Collectively, AI-themed ETFs now manage $4.5 billion in assets, nearing the $5.5 billion in nuclear power ETFs and exceeding the $1.37 billion held in cannabis sector ETFs.

"The growth of these funds isn’t surprising," said Daniel Sotiroff, senior analyst at Morningstar. "It’s a rapidly evolving industry, and investors are hopeful about short-term returns." The more than 200% surge in Nvidia’s stock price in the last year has likely reinforced that optimism, Sotiroff added.

In addition to Nvidia, AI is anticipated to benefit a wider array of companies in the coming years, according to Tony Kim, head of the fundamental equities technology group at BlackRock. Kim manages BlackRock’s two new AI ETFs, the iShares A.I. Innovation and Tech Active ETF and the iShares Technology Opportunities Active ETF, launched Tuesday. BlackRock’s first AI-related product, the iShares Future AI & Tech ETF, was introduced in 2018 and recently traded near its 52-week high.

While the original ETF tracks an index, the two latest funds are actively managed to capture emerging AI opportunities, explained Jay Jacobs, head of active and thematic ETFs at BlackRock. “The AI landscape will transform significantly,” Kim noted. “What we see now won’t be the same in a year or even in the near future.”

The AI Investment Race

BofA Securities analysts Ohsung Kwon and Savita Subramanian describe an ongoing “AI arms race” among tech giants like Microsoft and Amazon, projecting that these companies’ capital expenditures on AI will reach $206 billion this year—up 40% from 2023. Meanwhile, capital spending by the other S&P 500 firms will likely decline. Venture capital is also pouring into AI, with firms projected to invest $79.2 billion in AI startups by year’s end, a 27% increase from 2023, according to Accel.

However, investing in AI-themed ETFs is not a surefire path to outperformance. The largest AI ETF, the Global X Artificial Intelligence & Technology ETF, has gained about 20% this year, compared to the S&P 500’s 22% rise.

Earlier this month, Amplify ETFs rebranded a cloud-computing ETF to the Amplify Bloomberg AI Value Chain ETF, refocusing it on AI. "Our goal is to capture AI exposure through the cloud," said Nathan Miller, Amplify’s vice president of product development. The long-term strategy, Miller explained, is to be positioned to benefit as AI-related capital spending eventually influences earnings and helps identify future investment opportunities. "We aim to offer a unique investment product," he concluded.