ETFs Surge as Asset Managers Target AI Boom, Creating New Investor Opportunities

Asset managers are tapping into the market's AI-driven excitement with a surge of new ETFs, each designed to give investors a foothold in this fast-evolving industry. With $4.5 billion in AI ETF assets, companies like BlackRock and Amplify aim to capture emerging opportunities in AI and related technologies.

AI ETFs Surge to $4.5B, Fueled by New Launches and Growing Investor Confidence

Exchange-traded funds are being offered by asset managers, which provide investors with new opportunities to capitalize on the market's enthusiasm for artificial intelligence. Nevertheless, which companies will emerge as the long-term winners of the most recent technological revolution remains uncertain.

Morningstar data indicates that over one-third of the two dozen exchange-traded funds (ETFs) that incorporate artificial intelligence (AI) into their names were introduced in 2024, per Reuters.

Three additional ETFs were added to their portfolios the previous week, one of which was rebranded and redesigned to specifically target AI. The AI ETF group has now amassed $4.5 billion in assets, which places it near the $5.5 billion nuclear power-themed ETF universe and significantly surpasses the cannabis sector, which has $1.37 billion in assets.

"I'm not surprised their ranks are multiplying," said Daniel Sotiroff, senior analyst at Morningstar. "This is a fast-growing, fast-moving industry, and it is easy to hope that you could end up making a lot of money in a short period of time."

Sotiroff stated that the 200% stock gain by the poster child of Nvidia AI, a chipmaker, over the past year likely reinforces that confidence.

According to Tony Kim, the chief of the fundamental equities technology group at BlackRock, AI is expected to generate a broader range of beneficiaries than just Nvidia in the future. Kim manages the iShares A.I. Innovation and Tech Active ETF and the iShares Technology Opportunities Active ETF, which BlackRock introduced on Tuesday.

The $630 million iShares Future AI & Tech ETF, the company's inaugural AI product, is trading just below its October 52-week high.

Jay Jacobs, BlackRock's director of active and thematic ETFs, has stated that the two new funds are actively managed and intended to capitalize on emerging opportunities within AI despite the initial AI product being linked to an index.

"The AI market is going to change dramatically," said Kim. "What you think it is today, isn’t going to be what it becomes tomorrow or next year or in a few years."

BofA Analysts Foresee $206B AI Investment Surge as Firms Embrace ‘Arms Race’

In a recent report, market analysts Ohsung Kwon and Savita Subramanian of BofA Securities expressed their conviction that there is an "AI arms race" underway among major technology companies, including Amazon.com and Microsoft. They predict that the capital expenditures of four mega caps that are placing significant wagers on AI this year will amount to $206 billion, a 40% increase from 2023. In the interim, they anticipate that the capital expenditures of the remaining 496 companies in the S&P 500 will experience a minor decrease.

According to an estimate from Accel, venture capital firms are also allocating up to $79.2 billion in funding to AI businesses by the end of the year, which is 27% more than the levels of 2023. This implies that an AI company will receive 40 cents for every dollar VC firms invest.

Naturally, investing in an AI-themed ETF does not guarantee market outperformance. The Global X Artificial Intelligence & Technology ETF, the largest of the AI funds, is up approximately 20% this year, in contrast to the benchmark S&P 500's 22% increase.

Amplify ETFs rebranded an existing cloud-computing ETF earlier this month to reflect a new concentration on emerging technology. The ETF was renamed the Amplify Bloomberg AI Value Chain ETF.

"Now, we're trying to get exposure to the cloud with a specific AI tilt," said Nathan Miller, vice president of product development at Amplify.

He also stated that the long-term objective is to be prepared to capitalize on AI's potential and to be ahead of the curve in identifying new opportunities when capital expenditures begin to manifest in earnings.

"Like every ETF firm out there, we are trying to offer investors something differentiated," Miller said.