Riding the AI Wave: A Smart Investment Opportunity
The S&P 500 has achieved an impressive feat, delivering back-to-back annual total returns of over 25% in 2023 and 2024. This rare occurrence has only happened once before, during the dot-com internet boom of 1997 and 1998. This time, however, the driving force behind this growth is artificial intelligence (AI).
The AI Revolution: A New Era of Growth
Some of the world’s largest companies are at the forefront of this AI revolution. Nvidia, for instance, has seen its stock soar over 840% since the beginning of 2023, catapulting its value to $3.4 trillion. While this growth is impressive, it’s essential to remember that investing in emerging industries can be challenging. The dot-com bubble taught us that picking winners and losers can be extremely difficult, leading to incredible success stories alongside thousands of failed companies.
A Smarter Way to Invest in AI
Instead of trying to pick individual winners, investing in an exchange-traded fund (ETF) that holds a portfolio of AI stocks could be the smartest way to play this tech revolution. The Roundhill Generative AI and Technology ETF (NYSEMKT: CHAT) offers a diversified portfolio of AI leaders, including Nvidia, Alphabet, Microsoft, Meta Platforms, and Taiwan Semiconductor Manufacturing.
A Concentrated Portfolio of AI Leaders
The Roundhill ETF holds a concentrated portfolio of 50 stocks, focusing on companies developing the platforms, infrastructure, and software that bring AI to life. While this concentration can lead to volatility, it’s suitable for investors who already have a diversified portfolio of other ETFs and/or stocks.
Top Holdings and Performance
The top five holdings in the ETF include a star-studded lineup of AI leaders, with Nvidia, Alphabet, Microsoft, Meta Platforms, and Taiwan Semiconductor Manufacturing leading the charge. The ETF delivered a return of 31% in 2024, comfortably beating the S&P 500, thanks to the average gain of 74% for its top five holdings.
Diversification and Compounding
While the Roundhill ETF is too concentrated to serve as a complete portfolio on its own, it can help elevate the returns of a diversified portfolio, especially if AI stocks continue to lead the market higher. By splitting an investment between the S&P 500 and the Roundhill ETF, investors can potentially benefit from the magic of compounding, leading to significant outperformance over the long run.
The Future of AI
Roundhill estimates that AI could add a whopping $7 trillion to the global economy by 2032, with hardware suppliers like Nvidia, Taiwan Semiconductor, and Broadcom benefiting from the growth. Software companies like Microsoft, Alphabet, and Palantir will also play a significant role in driving this growth.
A No-Brainer Investment Opportunity
For investors who don’t already have much exposure to the AI revolution, the Roundhill ETF looks like a no-brainer. With a single share available for less than $50, it’s an accessible way to tap into the potential of AI.
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