Investing in artificial intelligence (AI) can pose a notable challenge for some investors.
Many potential shareholders may be too reluctant to take the risk of purchasing individual stocks. Companies with more risk tolerance may be wary of Nvidia after its big rally or be hesitant to buy stocks like Super Micro Computer, which has been late filing its SEC reports.
Fortunately, such investors can rely on exchange-traded funds (ETFs), which invest in baskets of stocks that match specific criteria and are managed by professionals. When it comes to AI investing, three specific ETFs serve investors of all risk levels while generating significant returns for shareholders in the process. Three Fool.com contributors discuss that possibility.
This ETF has more than 20 semiconductor stocks, so why pick just one or two?
Jake Larch (VanEck Semiconductor ETF): My choice for a safe way to invest in AI is the VanEck Semiconductor ETF (NASDAQ: SMH).
First, the appeal of this fund is that it specializes in the semiconductor sector, which is attracting attention. The fund’s major holdings include all the big-name semiconductor stocks you’d expect, including Nvidia, Advanced Micro Devices, Taiwan Semiconductor Manufacturing Co., and Broadcom. However, this fund includes Teradyne and Synopsys, which specializes in semiconductor testing.
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Data by YCharts.
Additionally, the ETF has significant holdings across multiple rival companies, so investors in the fund will be at an advantage no matter which company ultimately wins in the battle to develop the best AI chip. I am in a position. For example, suppose Nvidia ends up losing out to competitors like AMD and Intel. In that case, investors in the fund would continue to have exposure to those companies.
The fund’s biggest appeal is its strong connection to the AI revolution. Collectively, AI-powered tools are changing the way we live and work, just as smartphones and computers have for the past few decades. More and faster semiconductors are desperately needed. This is why sales and profits are soaring for companies both at the top and bottom of the semiconductor value chain.
For those who want to invest in this technology wave but don’t want to pin their hopes on just one or two stocks, the VanEck Semiconductor ETF is a fund worth considering.
Pay attention to the invisible “AI ETF”
Will Healy (Invesco QQQ Trust): Rather than picking specific companies, you could simply invest in top tech stocks. In fact, such an approach could limit the benefits of choosing your next Nvidia. However, it also reduces the damage that can result from unexpected disruptions within a company.
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Invesco QQQ Trust (NASDAQ: QQQ) is one easy way to take this approach. This ETF invests in the top 100 non-financial companies listed on the Nasdaq Composite Index. To be sure, not all of the company’s holdings carry equal weight or are part of the technology industry. In fact, one of its top 10 holdings is retail giant Costco Wholesale.
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Nevertheless, choosing these top stocks on Nasdaq will make managing your fund easier. Therefore, investors pay an ETF expense ratio of just 0.2%, which is significantly lower than Morningstar’s average ETF and mutual fund expense ratio of 0.36%.
Additionally, most of the top holdings are based on the personalities of AI stocks. Its largest holding is Apple, with an 8.7% allocation. In second place is Nvidia, accounting for 8.3% of the fund’s holdings, and Microsoft rounds out the top three, accounting for 7.8% of the fund’s holdings. Overall, the top 10 stocks account for approximately 50% of the fund.
Another benefit is that the Invesco QQQ fund provides investors with exposure to smaller companies that use AI. Stocks such as The Trade Desk and struggling Supermicro are also included in the index, and could deliver even bigger gains if massive growth resumes.
Among these choices, the fund returned nearly 35% last year, slightly outpacing the S&P 500.
Still, the best reason to own it is the potential for long-term gains. With a return of approximately 155% over five years, shareholders have a better chance of benefiting from AI without the risks associated with a sometimes volatile industry. That in itself is a great reason for many investors to outsource their risk and stay in the top NASDAQ stocks.
Looking for the benefits and peace of mind of AI? Don’t sleep on the good old S&P 500.
Justin Pope (Vanguard S&P 500 ETF): It may be a little unconventional, but the S&P 500 is a great way to safely invest in AI. There are many opportunities in AI for a small number of large technology companies, known as the “Magnificent Seven.”
For example, Nvidia is a leading manufacturer of AI chips. Microsoft, Amazon, and Alphabet control most of the market for public cloud services, which are essential for deploying AI software. Tesla is developing AI technologies such as self-driving cars and humanoid robots. Apple is bringing AI technology to its electronic devices, and Meta Platforms is weaving AI into social media platforms like Facebook, Instagram, and WhatsApp.
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The Magnificent Seven is market-cap weighted, making up more than 31% of the S&P 500 index, making these companies worth trillions of dollars. If emerging AI companies perform well enough, they will also be included in the index. Market darling Palantir Technologies only recently joined the index. The index has strict criteria, and if a company ranks, it’s probably a winner. This takes the guesswork out of trying to own the right company in the AI industry, which is still in its infancy and should evolve significantly over the next few years.
Did we mention that the S&P 500 is probably the safest AI choice? Because this index includes 500 prominent U.S. companies from every corner of the economy, it automatically moves beyond AI and technology stocks. Investments are diversified. Moreover, this index has proven to be surprisingly resilient. It has been rising for decades and today is at an all-time high. Remember, even the S&P 500 is not immune to economic downturns and volatility.
Although you can’t invest directly in the S&P 500, the Vanguard S&P 500 ETF (NYSEMKT: VOO) tracks the index and has a negligible expense ratio of 0.03%. The S&P 500 isn’t as flashy because it’s not purely AI-powered. But the most popular indexes on the market offer a combination of AI exposure and safety that is hard to beat.
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Suzanne Frey, an Alphabet executive, is a member of the Motley Fool’s board of directors. Randi Zuckerberg is a former head of market development and spokesperson at Facebook, sister of Meta Platforms CEO Mark Zuckerberg, and a member of the Motley Fool’s board of directors. Jake Lerch has positions in Alphabet, Amazon, Invesco QQQ Trust, Nvidia, Tesla, The Trade Desk, and VanEck ETF Trust – VanEck Semiconductor ETF. Justin Pope has no position in any stocks mentioned. Will Healy works for Advanced Micro Devices, Intel, Palantir Technologies, Super Micro Computer, and The Trade Desk. The Motley Fool has positions in Advanced Micro Devices, Alphabet, Amazon, Apple, Costco Wholesale, Meta Platforms, Microsoft, Nvidia, Palantir Technologies, Synopsys, Taiwan Semiconductor Manufacturing, Tesla, The Trade Desk, and Vanguard S&P 500 ETFs. Recommended. The Motley Fool recommends Broadcom, Intel, Nasdaq, Teradyne and recommends the following options: Microsoft’s January 2026 $395 long call, Microsoft’s January 2026 $405 short call, and Intel’s November 2024 $24 short call. The Motley Fool has a disclosure policy.
Want to safely invest in artificial intelligence (AI)? Buy these 3 ETFs originally published by The Motley Fool.
