Artificial intelligence (AI) is generating a lot of hype, but the first signs are starting to emerge that this is not just a stock market bubble, but a sea change that will produce tangible economic results. Goldman Sachs (NYSE: GS) believes AI could boost productivity by 1.5% annually over the next decade and boost the S&P 500 index (spx extension) you earn 30% in the same time frame.
The renowned investment bank previously predicted that generative AI (more on that shortly) could help increase global GDP by 7%, or $7 trillion, over the next decade. A great way to invest in this emerging megatrend is through ETFs. Here are two under-the-radar AI ETFs taking interesting approaches to the space. Both are fairly new and relatively small in terms of assets under management, and both could be hidden gems for investor portfolios.
CHAT is the world’s first ETF focused specifically on generative AI, the technology Goldman Sachs has hailed as boosting GDP. Roundhill explains that generative AI is an AI that can create new and unique content, such as images or text, by learning patterns and structures from existing data.
Generative AI differs from traditional, generalized AI in its ability to create new and unique content, rather than simply analyzing or processing existing information. Examples of Generative AI that you may have seen or experienced could be asking ChatGPT to write a poem or story for you or creating an image seemingly out of thin air with Dall-E. adobe (NASDAQ: ADBE) is now incorporating AI into its core Photoshop and Illustrator products with Firefly, its creative generative AI engine that allows users to describe the images they want to generate using text.
Therefore, it’s no surprise that Adobe has a 5.2% weighting in the CHAT ETF. Overall, CHAT has 35 holdings and its top 10 holdings account for 56.1% of the fund. Below, you can take a look at CHAT’s top 10 holdings using TipRanks’ holding tool.
Nvidia (NASDAQ:NVDA) is CHAT’s main holding, which makes sense given that Nvidia’s semiconductors are powering today’s generative AI applications. Beyond these names and other mega-cap tech names like Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOGL), CHAT casts a wide net in AI generative name research.
It owns several Chinese companies that are making advances in artificial intelligence, from stocks well known to Western investors such as Baidu (NASDAQ: BIDU) and Tencent (OTC:TCEHY), to more hidden names like iFlytek Co. and SenseTime Group. These types of stocks are stocks that can be difficult for retail investors to access, so it’s nice to have the ability to gain exposure to them via CHAT.
We first covered CHAT last month when it launched and had less than $2 million in assets under management (AUM). Now, just a few weeks later, CHAT has grown to over $66 million in AUM. While this is still relatively small in the ETF world, it shows that CHAT is gaining momentum. The only downside to point out about CHAT is that it is a new, small ETF with no proven track record and has a relatively high expense ratio of 0.75%.
Still, CHAT looks like an attractive option for investors due to its unique and undiluted focus on generative AI and its portfolio that goes off the beaten track to find these generative AI companies.
It also has an ETF Smart Score of 8 out of 10. The Smart Score is TipRanks proprietary quantitative stock scoring system. It rates stocks from 1 to 10 based on eight key market factors. Scoring is data-driven and involves no human intervention.
Are CHAT shares a buy, according to analysts?
Analysts view CHAT as a moderate buy. Over 75% of ratings on CHAT are buys, 21.8% are retained and only 2.8% are sales. It should be noted that the average CHAT share price target of $31.55 represents only 4.9% upside potential, reflecting the fact that CHAT’s price has risen more than 15% since its launch just one month does.
Like CHAT, the WisdomTree Artificial Intelligence & Innovation Fund is a newcomer to the world of ETFs, launching in December 2021. It is larger than CHAT, with nearly $100 million in AUM, and has a relatively lower expense ratio of 0.45%. .
While WTAI isn’t solely focused on generative AI like CHAT, it takes a global approach towards investing across the space as a whole, including AI software, semiconductors, hardware (which includes things like drones, autonomous vehicles, and industrial automation), and innovation, which WisdomTree describes as any application of AI technology that disrupts existing industries.
WTAI is more diversified than CHAT, with 79 holdings, and its top 10 holdings make up just 20.9% of the fund. Below, you can get an overview of WTAI’s top 10 holdings.
Like CHAT, WTAI’s top rank is Nvidia, albeit with a lower weighting of 2.55%. Competitor Nvidia Advanced Micro Devices (Nasdaq:AMD) is the fund’s second-largest holding, and the semiconductor space is well represented in the top 10 with these names plus Taiwan Semiconductor (NYSE:TSM), Synopsis (NASDAQ: SNPS) and cadence design systems (NASDAQ:CDNS).
Like CHAT, WTAI is not afraid to step off the beaten track and go international in its search for AI leaders, with top 10 positions in Taiwan’s Alchip Technologies and Switzerland’s STMicroelectronics NV (NYSE: STM). WTAI also has positions in mega-cap tech names that are driving advances in AI, such as Microsoft, Alphabet and Meta Platforms (NASDAQ: META).
WTAI has a Neutral ETF Smart Score of 7, one point lower than CHAT.
Is WTAI Stock a Buy, According to Analysts?
WTAI is viewed as a moderate buy by analysts, and nearly 70% of analyst ratings on ETFs are buys. The average WTAI stock price target of $21.09 is only 7.7% higher than the ETF’s current price, reflecting the fact that the ETF has gained nearly 40% year-to-date.
Takeaway investor
AI and Generative AI will have a long-term impact for years to come, and this is the kind of secular trend that I personally want to invest in. like the fact that it leaves no stone unturned in its hunt for AI stocks. I like WTAI for its comprehensive and all-encompassing approach to AI innovation. Therefore, both ETFs seem intriguing options for investors looking to add exposure to their portfolios.
Disclosure
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