Why ETFs are an 'attractive' way to play AI: Strategist

When it comes to AI, most investors think of companies like Nvidia (NVDA) or Microsoft (MSFT). But what about those that don't want to bet on just one or two companies? ETF Think Tank Director of Research Cinthia Murphy says that many believe AI-focused ETFs are an "attractive" option for investors because "you get the diversification, you're not putting all your chips on one horse, you're kind of betting on the race in general." Murphy adds that ETFs can provide options for those who want invest in the broad AI theme or for those who are maybe looking for a more specific AI angle. Watch the video above to find out Murphy's best AI ETF plays.

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Video Transcript

- Investors are noticing the wide array of applications that AI tech can have. But choosing wisely amid the influx of stocks and funds, as well as a vast amount of movement in the space, can be challenging. So how do you fit it into your portfolio, should you so choose? As part of the ETF report brought to you by Invesco QQQ, let's bring in ETF Think Tank Director of Research Cinthia Murphy to discuss more.

So Cinthia, great to discuss this with you this morning. As you think about where you're seeing some investors take stock of where AI is going to have the most immediate applications and where some of those long-term opportunities are, how are you seeing people include this in their portfolio from an ETF perspective?

CINTHIA MURPHY: Hey. I'm excited to be here. This is a theme that started the year on all gears. It was super hot. It went into hype mode. And maybe to a lot of our surprises, it actually has stayed hot. And I think it's a space that investors are seeing as must-own. And for companies that are on any industry today, it's almost like AI now is just table stakes. You have to have an investment in it. You have to be developing your technology. You have to be doing things in a smarter way. So it's no longer, like, a cherry on top. It's just like, you have to have it as a building block.

So from an investment perspective, it's been a really interesting space to watch because there's so many ETFs out there. I mean, you start off with the concept of ETF to access the AI story if you're already concerned about how do you even know which companies are going to win in this space. Who is going to survive? Who's going to have the leading tech? Who is going to fall behind? Who's going to be acquired by who? So the concept of an ETF is attractive to a lot of people trying to access AI as a theme because you get that diversification. You're not putting all your chips in one horse. You're kind of betting on the race in general.

And even in that, there's so many ways to slice and dice this space. I can tell you in general, whether you're going to go broad or whether you're going specific on, say, robotics or whether you're all in on generative AI, we're seeing asset flows into all of these sleeves of all these parts of this theme.

So it's a space that-- it has been surprisingly resilient, even though there's been so much concern about growth. There's been so much concern about high cost of capital. These-- are a lot of these are big growth names. But the money is flowing. And it's a trend that we don't see stopping anytime soon.

- Cinthia, when you talk about the fact that maybe this trend won't stop anytime soon, a lot of investors very excited, they want exposure to AI-- so what are the best ways, you think, to play this sector right now through ETFs?

CINTHIA MURPHY: So I-- there's many ways to slice this. I think you can think of it in maybe three easy buckets, if you will. One is just your broad, catch-all type of take. There's a lot of, actually, veteran ETFs in this space, like five-year-old funds, way before AI was a big hype. So funds that are broadly diversified-- so tickers like AIQ come to mind, or IRBO for my shares. These are funds that invest in the entire value chain of artificial intelligence, robotics, technology. So they own the hardware names. They own the software names. They will own the creators and the applicators, if you will.

The choice is there. If you're going to go with that type of approach, super diversified is actually what level of diversification you want. On AIQ, for example, you're getting, like, heavyweights, big market cap, lots of tech. You go IRBO, it's an equally weighted portfolio, tilts a lot smaller. And you get a very different mix of names in there. You even have a fund like-- a company like MicroStrategy in there, which is known in the Bitcoin space. So you have to, like, really take a moment to look at what type of exposure you're getting and what type of concentration you're getting on specific names.

The other bucket that's a super popular bucket would be your robotics, automation type of bucket. ARK is a big player in there, big brand in that space. But you have, like, some-- like, your battle between things like ROBO, R-O-B-O, and B-O-T-Z, B-O-T-Z. And there's many ETFs in the robotics space.

Again, it becomes a decision of, do you want to invest in the creators, the softwares, the developers, which would be, for example, a ROBO, or do you want to invest in the applicators, the companies that are implementing AI and robotics to do their businesses better on a day-to-day basis? That would be BOTZ.

So if you look at a fund like BOTZ versus ROBO, BOTZ has a lot of industrial names, health care names. It's not your classic super tech fund. And it's really popular. It has $2 billion in assets. It's picked up, I think, almost half a billion dollars so far this year. So the application of automation and robotics is a popular way to access the story as opposed to just the companies creating.

And as a final one-- is the hype this year specifically is generative AI. And so we're seeing product development on that front. CHAT, C-H-A-T, from Roundhill is a big name in there. It's only six months old. And it's already picking up almost $100 million in assets. So it's another way to go.

- All right. Cinthia Murphy, thanks so much for giving us some insight there on ways to play the AI space through ETFs, ETF Think Tank director of research. Thanks, Cinthia.