This exchange-traded fund offers investors highly concentrated exposure to the artificial intelligence revolution.
The S&P 500 (^GSPC 0.05%) has been soaring this year. It’s up 28% with just one month of 2024 remaining, which is more than twice its average annual return since the index was established in 1957.
The S&P 500 is weighted by market capitalization, so the largest companies in the index have a greater influence over its performance than the smallest. Therefore, its strong year is no surprise when you consider that shares of Nvidia (NVDA 1.18%) — now a $3.3 trillion powerhouse — have soared by 187% in 2024.
But Nvidia wasn’t the only trillion-dollar company to put up big returns this year. Meta Platforms and Amazon have logged gains of 65% and 38%, respectively. Investors who don’t have exposure to those artificial intelligence (AI) giants in their portfolios have probably underperformed the S&P 500 by a wide margin in 2024.
Buying an exchange-traded fund (ETF) can be an easy way to get that exposure. The Roundhill Generative AI and Technology ETF (CHAT 1.05%) holds many of the most popular AI stocks, and investors can buy into it with as little as $40.
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A true AI-focused ETF
According to research by Goldman Sachs, AI should contribute about $7 trillion to the global economy by 2032. The Roundhill ETF invests in the companies building the platforms, infrastructure, and software that are bringing this technology to life.
The ETF holds just 48 stocks, and its top five positions account for 26.4% of the value of its portfolio, so it’s highly concentrated. But those five stocks are among the leaders in the AI race.
|
Stock |
Roundhill ETF Portfolio Weighting |
|---|---|
|
1. Nvidia |
7.28% |
|
2. Microsoft |
5.85% |
|
3. Alphabet Class A |
5.53% |
|
4. Meta Platforms |
4.41% |
|
5. Taiwan Semiconductor Manufacturing |
3.39% |
Data source: Roundhill Investments. Portfolio weightings as of Dec. 1, 2024.
Nvidia supplies the most advanced graphics processing units (GPUs) for the data center market — chips that are necessary to develop and power AI models. Demand for those GPUs is significantly outstripping supply, and the company’s data center revenue has grown by triple-digit percentages in each of the last six quarters. Nvidia’s new Blackwell GPUs deliver a major leap in performance over the previous generation of chips, so they should buoy its sales for the foreseeable future.
Microsoft and Alphabet are leaders on the software side of the AI race. Microsoft developed its Copilot virtual assistant with help from OpenAI, while Alphabet built its own family of models called Gemini. Plus, both tech giants provide a growing portfolio of AI services through their respective cloud computing platforms, which allow businesses all over the world to deploy the technology.
Meta, on the other hand, built Llama, the industry’s most popular open-source large language model (LLM) family. It’s using those models to create exciting new AI features for Facebook and Instagram.
Other popular AI stocks the Roundhill ETF holds include Palantir Technologies, Advanced Micro Devices, Oracle, and Amazon.
The Roundhill ETF is beating the S&P 500 in 2024
The Roundhill ETF was established in May 2023, so it doesn’t have much of a track record for investors to analyze. However, its 57% return since then is better than the 47% total return the S&P 500 has booked over the same period. The ETF is also beating the S&P this year, with a gain of almost 29% so far.
The ETF has an expense ratio of 0.75%, which is the proportion of the fund deducted each year to cover management costs. That’s relatively high compared to ETFs managed by Vanguard, for example, which mostly have expense ratios of 0.1% or less. Higher costs are typical for specialized funds like this one, but they can eat away at investors’ returns over the long term.
Naturally, the future performance of this fund will depend entirely on the success of AI. If the technology’s growth lives up to the estimate from Goldman Sachs, then it will be a huge market that the companies in the ETF can grow into. If it fails to live up to expectations, stocks like Nvidia could lose a significant amount of value.
With that said, Morgan Stanley estimates that four companies — Microsoft, Alphabet, Amazon, and Meta — will spend a combined $300 billion on AI infrastructure during 2025. That’s a clear sign of their expectations for AI’s success. The spending will include chips, so it will be a massive tailwind for suppliers like Nvidia and AMD.
Therefore, the stage is set for the Roundhill ETF to perform well over the next year at least. But given its high concentration, investors should only buy the ETF as part of a balanced portfolio that includes other funds and individual stocks with little, or no exposure to the AI revolution already.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. 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. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Goldman Sachs Group, Meta Platforms, Microsoft, Nvidia, Oracle, Palantir Technologies, and Taiwan Semiconductor Manufacturing. 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.
