Artificial intelligence (AI) was the dominant theme in the stock market in 2024. There were standout performances from select AI chips, AI software and even energy stocks as power-hungry data centers boosted demand for electricity.
But picking individual winners and losers won’t be easy. Advanced Micro Devices The stock is up 50% in the first few months of 2024, but it’s on track to end the year down by 10%. This sequence of events would have been impossible to predict 12 months ago, especially since AMD is now the leading supplier of AI chips.
As a result, most investors would be better off buying AI-based exchange-traded funds (ETFs) instead, which can offer diversified exposure to this technological revolution.
In doing so, investors should look for AI ETFs that have diversified industry exposure.In other words, a good ETF will hold shares in AI hardware companies such as Nvidia:AI software companies love Microsoftand even companies deploying AI in their legacy businesses, for example Meta platforms or ServiceNow:.
While AI is likely to create significant value, past technology booms (like the Internet) have taught us that volatility is part of the journey; some companies will hit their home runs, while others will fail completely.By owning a piece of each AI segment, investors can maximize their chances of generating positive returns on a consistent basis.
This is a major AI fund because its sole purpose is to invest in companies that develop the infrastructure, platforms and software that drive the AI ​​revolution.
The ETF holds just 50 stocks, and it’s relatively high, as its five largest holdings alone account for 26.6% of its total portfolio value;
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Shares
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Roundhill ETF Portfolio Weighting
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1. Nvidia
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7.69%
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2. The alphabet
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5.75%
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3. Microsoft
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5.34%
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4. Meta platforms
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4.16%
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5. Taiwan Semiconductor Manufacturing
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3.67%
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Data Source: Roundhill Investments Portfolio weightings are accurate as of December 23, 2024 and are subject to change.
That group of five stocks is diversified on its own: Nvidia and Taiwan Semi cover the hardware side of AI, Alphabet and Microsoft make big bets on artificial intelligence software, and Meta integrates AI. is on his Facebook and Instagram social networks.
Outside of its top five positions, the Roundhill ETF has several other popular AI stocks such as Palantir Technologies, Oracle:and: Apple:. It also has small positions Vistra Energy: and: Energy of the constellationwhich have struck big deals with tech companies to power their AI data centers.
The fund was only created in 2023, so it doesn’t have a very long history for investors to analyze. However, it generated a whopping 38% return in 2024, beating both S&P 500:which increased by 24%, and Nasdaq-100which increased by 31%.
The ETF has an expense ratio of 0.75%, which is the portion of the fund deducted each year to cover management costs. That’s relatively high, even for a very specialized fund. Most of the low-cost ETFs issued by Vanguard have an expense ratio of 0.1 Less than %, and even the iShares ETF (which I’m about to discuss) has an expense ratio of just 0.47%.
That may be the only downside to owning the Roundhill ETF. However, it certainly made up for its high value in 2024 thanks to its incredible returns, and it could do so again in 2025 if AI stocks hold up. climb up
The iShares ETF was created in 2018 with a focus on robotics and AI, but it changed its name and purpose in August 2024. It now aims to invest in the entire value chain of companies in the AI ​​race, including companies building AI infrastructure. develop generative AI, provide AI services, etc.
Like the Roundhill ETF, this fund also has just 50 stocks. Its top five holdings account for 23.4% of its total portfolio value, and each of them is in the AI ​​hardware sector;
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Shares
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iShares ETF portfolio weighting
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1. Broadcom:
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5.69%
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2. Arista Networks
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4.73%
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3. Nvidia
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4.50%
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4. Advanced Micro Devices
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4.29%
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5. Vertiv Holdings
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4.19%
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Data source: iShares.Portfolio weightings are accurate as of December 23, 2024 and are subject to change.
Broadcom and Arista Networks supply data center networking equipment that helps operators optimize their infrastructure. However, Broadcom also makes AI accelerators, which are special data center chips that some tech giants use as an alternative to Nvidia. to graphics processing units (GPU).
On the other hand, Advanced Micro Devices is Nvidia’s direct competitor in the data center GPU market, and is a leading supplier of artificial intelligence chips for personal computers, which could be the company’s main growth driver for the next few years. during, as more of the intelligence workload is processed on the device.
The iShares ETF is a bit more diversified as you look beyond its top five holdings.It has stakes in many AI favorites like Palantir, Amazon:alphabet, microsoft and meta platforms.
Since the iShares ETF only restructured its portfolio on August 12 of this year, its performance history is extremely short, but since then it has gained 24%, almost twice the gain of the S&P 500. However, the four-month period is not enough to draw any real conclusions.
However, this looks like a great ETF to buy for 2025 based on the quality of its portfolio; if AI remains the stock market’s dominant theme next year, it should do very well.
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John Mackey, former CEO of Amazon subsidiary, is on The Motley Fool board of directors Susan Frey, CEO of Alphabet, is on the board of directors of The Motley Fool Randy Zuckerberg, former market development director and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is on The Motley Fool’s board of directors. Antony Di Pizio has no position in any of the listed stocks.The Motley Fool has positions in Advanced Micro Devices, Alphabet, Amazon, Apple, Arista Networks, Meta Platforms, Microsoft, Nvidia, Oracle, ServiceNow and Taiwan Semiconductor Manufacturing 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 At Microsoft: The Speckled Fool has a disclosure policy.
2 Artificial Intelligence (AI) ETFs to Buy in 2025 originally published by The Motley Fool
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