One of the hottest areas for investors at the moment is artificial intelligence (AI). While the technology has existed in various capacities for decades, applications in areas such as cloud computing, workplace automation, and e-commerce have businesses moving quickly to integrate AI across their organizations.
If you’re an investor, odds are that you’ve been bombarded by headlines featuring the “Magnificent Seven” stocks — a moniker used to capture the biggest names in AI: Microsoft, Apple, Amazon, Alphabet, Nvidia, Meta Platforms, and Tesla.
While choosing among megacap tech stocks presents a good way to gain exposure to AI, some investors may prefer a more passive approach. Moreover, savvy investors understand that AI is being developed by many enterprises outside of the Magnificent Seven cohort.
The WisdomTree Artificial Intelligence and Innovation Fund (WTAI -1.98%) is an exchange-traded fund (ETF) that holds some of the most influential names in AI. Let’s dig into the fund and assess why it may be a good opportunity for investors seeking a passive approach to the hottest ticket on Wall Street.
Why is everyone so interested in artificial intelligence?
Forecasts surrounding the addressable market for AI have a wide range. Statista estimates that the AI market will grow at a compound annual growth rate of roughly 16% between 2024 and 2030 — resulting in a market of $738 billion. Meanwhile, Bloomberg reports that generative AI could reach a market size of $1.2 trillion by 2032.
What makes the WisdomTree Artificial Intelligence and Innovation Fund interesting is that it holds stocks in several different end markets — each of which is ripe to use AI to launch to new levels. For example, the ETF holds positions in companies that develop AI software for machine learning or natural language processing (NLP), semiconductors, and even AI-powered hardware applications in drones or self-driving vehicles.
Some of its largest holdings are Advanced Micro Devices, CrowdStrike, and Magnificent Seven members Meta Platforms, Microsoft, and Alphabet. A unique feature of the WisdomTree Artificial Intelligence and Innovation Fund is that even though the fund specifically focuses on AI, its holdings touch many different sectors, so that investors still achieve some level of diversification and risk mitigation.
The ETF also has positions in some stocks that have had a rough go in recent history. Gaming company Unity Software is a top position, a stock that is down roughly 20% in the past year. Additionally, semiconductor companies Qualcomm and Arm Holdings are both major positions. While each of these stocks has enjoyed a run-up in recent months, I suspect that this is due to enthusiasm surrounding AI and chips in general — as both companies are far smaller operations compared to that of Nvidia, and each is in the midst of a turnaround from an operating standpoint.
Is this WisdomTree Artificial Intelligence and Innovation Fund right for you?
One of the most important items to look at when choosing an index fund is the inception date. This will tell you how long the fund has been trading. It’s an important thing to consider because it can shed light on the fund’s performance over a multiyear period.
Given that the WisdomTree Artificial Intelligence and Innovation Fund has only been around since December 2021, there isn’t a ton of data to digest. Moreover, 2022 was an abysmal year for tech stocks in particular, while 2023 witnessed an outsize rebound — with the Nasdaq Composite surging over 40%.
This dynamic makes the returns for the WisdomTree Artificial Intelligence and Innovation Fund a little challenging to decipher. An important thing to keep in mind is that you don’t have to do anything after you buy shares of the fund. The fund’s managers change its holdings without requiring you to do any due diligence or research whatsoever.
This is where long-term thinking comes in handy. While use cases for AI are unfolding and the potential size of the market is ever-evolving, the consensus seems to be that AI will generate meaningful growth for at least the next several years. For this reason, funds that specialize in AI exposure could end up generating returns superior to that of the S&P 500 on a consistent basis.
An important caveat to note is that weightings for positions matter in ETFs. So while the WisdomTree Artificial Intelligence and Innovation Fund holds positions in several terrific businesses, the fund’s overall return since inception may be a bit muted due to the weightings of some of its larger holdings.
If you’re eyeing this ETF, also note that one of the most prudent strategies for investing in index funds is making a monthly contribution. Although it may not seem like much at the time of investment, consistent contributions can lead to generational wealth over a long-term time horizon thanks to the power of compounding.
I like that this fund offers investors exposure to smaller, perhaps overlooked AI developers and even explores options in companies that primarily operate overseas. However, while I understand that the ETF is clearly trying to build a portfolio that isn’t hyper-concentrated in just big tech, I think some of the fund’s positions in current market leaders need to be more of a prominent fixture.
I see the WisdomTree Artificial Intelligence and Innovation Fund as a lower-risk opportunity for investors looking to gain exposure to AI, but are overwhelmed by the process of choosing individual stocks. The robust secular outlook for AI and its ability to disrupt myriad markets could make investing in the space a lucrative option for investors with a long-term time horizon.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Alphabet, Amazon, Apple, CrowdStrike, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, CrowdStrike, Meta Platforms, Microsoft, Nvidia, Qualcomm, and Tesla. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
NEW YORK (AP) — Shares of Tesla soared Wednesday as investors bet that the electric vehicle maker and its CEO Elon Musk will benefit from Donald Trump’s return to the White House.
Tesla stands to make significant gains under a Trump administration with the threat of diminished subsidies for alternative energy and electric vehicles doing the most harm to smaller competitors. Trump’s plans for extensive tariffs on Chinese imports make it less likely that Chinese EVs will be sold in bulk in the U.S. anytime soon.
“Tesla has the scale and scope that is unmatched,” said Wedbush analyst Dan Ives, in a note to investors. “This dynamic could give Musk and Tesla a clear competitive advantage in a non-EV subsidy environment, coupled by likely higher China tariffs that would continue to push away cheaper Chinese EV players.”
Tesla shares jumped 14.8% Wednesday while shares of rival electric vehicle makers tumbled. Nio, based in Shanghai, fell 5.3%. Shares of electric truck maker Rivian dropped 8.3% and Lucid Group fell 5.3%.
Tesla dominates sales of electric vehicles in the U.S, with 48.9% in market share through the middle of 2024, according to the U.S. Energy Information Administration.
Subsidies for clean energy are part of the Inflation Reduction Act, signed into law by President Joe Biden in 2022. It included tax credits for manufacturing, along with tax credits for consumers of electric vehicles.
Musk was one of Trump’s biggest donors, spending at least $119 million mobilizing Trump’s supporters to back the Republican nominee. He also pledged to give away $1 million a day to voters signing a petition for his political action committee.
In some ways, it has been a rocky year for Tesla, with sales and profit declining through the first half of the year. Profit did rise 17.3% in the third quarter.
The U.S. opened an investigation into the company’s “Full Self-Driving” system after reports of crashes in low-visibility conditions, including one that killed a pedestrian. The investigation covers roughly 2.4 million Teslas from the 2016 through 2024 model years.
And investors sent company shares tumbling last month after Tesla unveiled its long-awaited robotaxi at a Hollywood studio Thursday night, seeing not much progress at Tesla on autonomous vehicles while other companies have been making notable progress.
TORONTO – Canada’s main stock index was up more than 100 points in late-morning trading, helped by strength in base metal and utility stocks, while U.S. stock markets were mixed.
The S&P/TSX composite index was up 103.40 points at 24,542.48.
In New York, the Dow Jones industrial average was up 192.31 points at 42,932.73. The S&P 500 index was up 7.14 points at 5,822.40, while the Nasdaq composite was down 9.03 points at 18,306.56.
The Canadian dollar traded for 72.61 cents US compared with 72.44 cents US on Tuesday.
The November crude oil contract was down 71 cents at US$69.87 per barrel and the November natural gas contract was down eight cents at US$2.42 per mmBTU.
The December gold contract was up US$7.20 at US$2,686.10 an ounce and the December copper contract was up a penny at US$4.35 a pound.
This report by The Canadian Press was first published Oct. 16, 2024.
TORONTO – Canada’s main stock index was up more than 200 points in late-morning trading, while U.S. stock markets were also headed higher.
The S&P/TSX composite index was up 205.86 points at 24,508.12.
In New York, the Dow Jones industrial average was up 336.62 points at 42,790.74. The S&P 500 index was up 34.19 points at 5,814.24, while the Nasdaq composite was up 60.27 points at 18.342.32.
The Canadian dollar traded for 72.61 cents US compared with 72.71 cents US on Thursday.
The November crude oil contract was down 15 cents at US$75.70 per barrel and the November natural gas contract was down two cents at US$2.65 per mmBTU.
The December gold contract was down US$29.60 at US$2,668.90 an ounce and the December copper contract was up four cents at US$4.47 a pound.
This report by The Canadian Press was first published Oct. 11, 2024.
