Chipmaking giant Nvidia reported second-quarter financial results after the closing bell on Wednesday, and the numbers were predictably impressive. The firm reported a 122% increase in sales in the quarter ending in July to go along with earnings that eclipsed Wall Street expectations.
Shares were down about 6% on Thursday.
It’s not often that a company posting better-than-expected results dings the share price, but Nvidia is an unusual case. The shares are up 146% on the year and an eye-watering 2,700% over the past half-decade. At this point, investors are undoubtedly beginning to wonder whether they’ve already baked in astronomical expectations for future growth into today’s stock price.
It’s as good a reason as any to wonder whether it’s worth taking a more diversified approach to investing in artificial intelligence. After all, if you believe that AI will revolutionize the way American companies do business, Nvidia will be far from the only major beneficiary.
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One way to get broad exposure to AI stocks is through an exchange-traded fund. Not only does owning one allow you to cast a wide net to find AI’s future winners, but it also helps mitigate the chances that your portfolio could get dragged down by one name that ends up underperforming.
“If you believe in the overall trend towards artificial intelligence, you have to realize that not all stocks are going to rise or fall the same way, and thus, an ETF offers you the chance to participate in the trend while mitigating some of those risks,” says Todd Rosenbluth, head of research at TMX VettaFI.
How an AI ETF can fit into your portfolio
Finding an AI ETF that’s right for you will require a little more effort than just typing “artificial intelligence” into your brokerage’s search bar. Any fund firm can slap “AI” in the name of a fund in the hopes of attracting investors interested in a hot trend.
In general, you’ll find AI mentioned in four types of funds, says Rosenbluth.
1. AI stock pickers
These funds aren’t necessarily investing in companies that have anything to do with AI. Rather, they use AI in their stock-picking strategy.
“These are no different from T. Rowe Price or Fidelity or other firms that are picking stocks,” says Rosenbluth.
2. AI and robots funds
A few funds focus on the intersection of AI and robotics, and own companies that are tied to one industry or the other, or both.
“Obviously, these aren’t going to be pure plays on AI or pure plays on robotics,” says Rosenbluth.
3. Generative AI funds
These funds focus on companies involved in generative AI technology featured in tools such as ChatGPT and Google Gemini. They tend to hold large, well-known tech companies at the top of the portfolio. Top holdings at one such fund offered by Roundhill Investments include Nvidia, Microsoft, Alphabet and Meta.
4. AI beneficiary funds
While the previous funds skew toward the large tech companies producing AI tools, other funds hold stock in a…
Read More: Nvidia isn’t the only way to invest in AI—how to choose an AI ETF
