Asset Managers Launch New AI ETFs Amid Growing Market Interest

Emerging Funds Tap into AI Boom, Offering Diverse Investment Opportunities

As the buzz around artificial intelligence (AI) intensifies, asset managers are rapidly introducing exchange-traded funds (ETFs) designed to help investors capitalize on this transformative technology. With more than one-third of the 24 AI-themed ETFs launched in 2024, it’s clear that the enthusiasm for AI is creating a significant investment trend, despite uncertainties about which companies will emerge as long-term leaders.

In just the past week, three new ETFs have entered the market, including a cloud computing fund that has been rebranded to specifically focus on AI. Currently, the total assets in AI ETFs stand at approximately $4.5 billion, closing in on the $5.5 billion held by the nuclear power ETF category, while surpassing the $1.37 billion in cannabis-related funds.

Analyst Insights on AI Growth

Daniel Sotiroff, a senior analyst at Morningstar, expressed that the rapid growth of AI funds is no surprise. “This is a fast-growing, fast-moving industry, and there’s a strong desire to profit quickly,” he noted. The impressive performance of chipmaker Nvidia, which has seen its stock value rise over 200% in the past year, has only fueled this confidence.

Tony Kim, head of BlackRock’s fundamental equities technology group, highlighted that AI’s potential extends beyond just Nvidia, suggesting a broader range of beneficiaries will emerge. BlackRock recently launched two new actively managed AI-themed ETFs: the iShares A.I. Innovation and Tech Active ETF and the iShares Technology Opportunities Active ETF. Their first AI product, launched in 2018, is currently nearing a 52-week high.

“The AI market is going to change dramatically,” Kim emphasized, indicating that current perceptions of AI may soon be outdated.

The AI Arms Race

Recent reports from BofA Securities analysts Ohsung Kwon and Savita Subramanian describe a competitive landscape among major tech firms like Microsoft and Amazon. They predict that capital spending by these companies will reach $206 billion this year, a 40% increase from 2023. Meanwhile, venture capital is also pouring into AI startups, with an estimated $79.2 billion expected to be invested in 2024, a 27% rise from the previous year.

Despite the enthusiasm, investing in AI ETFs does not guarantee outperformance. For instance, the Global X Artificial Intelligence & Technology ETF has gained about 20% this year, slightly trailing the 22% increase of the S&P 500.

Amplify ETFs has also joined the trend by rebranding an existing cloud-computing ETF to become the Amplify Bloomberg AI Value Chain ETF, aiming to provide targeted exposure to AI within the cloud sector. Nathan Miller, vice president of product development at Amplify, stated, “Our goal is to profit when AI capital spending translates into earnings and to be ahead of the curve in identifying new opportunities.”

Conclusion

The surge in AI-themed ETFs reflects a growing recognition of the technology's potential. As asset managers strive to meet investor demand for differentiated investment options, the AI landscape continues to evolve, promising exciting opportunities and challenges ahead.