Capitalize on the AI Revolution With These 3 ETFs

Key Points

• AI's status as a trending industry may tempt investors to take bigger chances on unknown names, although the space includes many companies that do not have much to offer.
• One way to mitigate risk while building exposure to AI into a portfolio is through ETFs.
• ETFs like BOTZ are specifically focused on AI companies, among others, while there are a host of other funds like SOXL and IGM that provide excellent exposure to the AI industry, albeit less directly.

AI is likely the hottest market available to investors now—at an estimated size of more than $243 billion this year, it is projected to more than triple by 2030. And yet, as a burgeoning industry, AI is populated by both tech stalwarts using their weight to influence the space and much smaller, more agile newcomers racing to develop essential technologies. It is also, unfortunately, home to an unsurprisingly large number of firms attempting to capitalize on the rapid rise of AI in general without necessarily contributing much to the industry.

For investors, AI presents a tremendous opportunity but also a challenge—how does one go about identifying top up-and-coming AI stocks that have yet to reach their full potential? With many investors cautious that there could be an AI bubble akin to the dot-com boom around 25 years ago, the reward and the risk are equally high.

For investors looking to hedge their bets through diversification, AI exchange-traded funds (ETFs) can represent a good opportunity. These can include funds that are specifically focused on AI companies, such as Global X Robotics & Artificial Intelligence ETF NASDAQ: BOTZ, as well as those related to the broader tech sector, like iShares Expanded Tech Sector ETF NYSEARCA: IGM, or to a crucial component used in AI applications, like Direxion Daily Semiconductor Bull 3x Shares ETF NYSEARCA: SOXL.

Global X Robotics & Artificial Intelligence ETF: Targeted Portfolio for a Price

BOTZ is one of a growing number of ETFs specifically focused on AI and robotics companies. For its asset base of $2.6 billion, it has a fairly robust 1-month average trading volume in the mid-600,000 range as of January 15, 2025. BOTZ is a focused fund, with fewer than 50 holdings, although aside from three or four major players that occupy 10% or more of the portfolio each, the assets are fairly evenly distributed across other names.

This fund will appeal mostly to investors looking for the diversification possible when looking to both AI and robotics names, meaning that some of the companies are not active participants in the AI space. The niche focus does come with a fairly high fee, as BOTZ has an expense ratio of 0.68%.

iShares Expanded Tech Sector ETF: Strong Performance, Broad Exposure

IGM's nearly 300 holdings make it a broad tech fund—though it doesn't have an AI focus, many of the companies represented in its portfolio are involved in AI. The fund's $5.7 billion in assets reflect its broad appeal, and its fee of 0.41% is fairly competitive, particularly against AI-specific funds.

As of January 15, 2025, it has a one-year performance record of 36.8%, outpacing the broader market by a good bit. One thing investors might keep in mind is that IGM holds all of the major tech players like Apple Inc. NASDAQ: AAPL and Microsoft Corp. NASDAQ: MSFT essentially, occasionally in fairly large percentages of assets invested, meaning that investors that have shares of those companies individually may skew the balance of their portfolios without intending to.

Direxion Daily Semiconductor Bull 3x Shares ETF: Leveraged Play For Compounded Returns

SOXL is another fund that is not specifically focused on AI companies but is closely linked with the industry.

By offering 3x long exposure to an index of semiconductor stocks, this fund provides a heightened opportunity to amplify daily returns when the semiconductor space does well. 

Semiconductors have flourished thanks to strong demand from AI and other corners of the tech space. However, the use of leverage means that active traders best employ this fund with a high tolerance for risk.

Beware the AI Name

As funds like IGM and SOXL show, it is possible to get strong exposure to a wide swath of the AI space without investing in an ETF explicitly named after the AI industry. Just as there are companies seeking to lure investors by alluding to AI in their names and materials without actually innovating, so too are there ETFs aiming to capitalize on the trend. Look at the holdings of a potential AI fund and compare them against traditional tech-focused funds like the Technology Select Sector SPDR Fund NYSEARCA: XLK—if there is substantial overlap, it may be possible to achieve similar AI exposure with a generic fund that has a lower expense ratio.