The tech sector has been on fire, with Nvidia’s stock skyrocketing 239% last year and a further 158% in 2024. This incredible growth has added a staggering $2.7 trillion to its market capitalization, making it the second-most valuable company globally. While Nvidia’s success is largely due to its dominance in designing powerful graphics processing chips for data centers, which are essential for developing artificial intelligence (AI) models, not all AI companies have been as fortunate. SoundHound AI, C3.ai, and Upstart Holdings have seen their stock prices plummet by 74%, 85%, and 89%, respectively, from their all-time highs.
Investing in AI can be challenging, as it’s difficult to predict which companies will emerge as winners in this rapidly evolving industry. A simpler strategy might be to consider exchange-traded funds (ETFs), which can provide exposure to a specific segment of the market, such as AI, while minimizing risk. One such ETF is the iShares Expanded Tech Sector ETF, which has successfully navigated several tech booms, including the internet, enterprise software, smartphone devices, cloud computing, and now AI.
This ETF holds 279 stocks, making it one of the most diversified technology funds available. While it’s heavily weighted towards its top 10 holdings, which account for 53.9% of its portfolio, these companies are all using AI in some capacity. Meta Platforms, Apple, Microsoft, Alphabet, and Nvidia are all leveraging AI to drive innovation and growth. The ETF has delivered a compound annual return of 10.8% since its inception in 2001, outperforming the S&P 500 index over the same period.
With AI expected to add trillions of dollars to the global economy in the coming years, technology stocks are likely to remain a key driver of growth. The iShares ETF provides a great way to tap into this trend while minimizing risk. However, it’s essential to maintain a diversified portfolio that includes exposure to non-technology sectors, just in case AI fails to live up to its promise.
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