Artificial intelligence (AI) has captured the attention of the investment world like never before. Excitement around technology has propelled companies once known primarily to tech enthusiasts into the mainstream, while companies across Silicon Valley are seeing their stock prices soar to historic highs on the promise of AI.
AI is still in its infancy, and there are certainly risks in getting ahead of it. However, you don’t have to agree with the loftiest predictions about AI (and there are many) to understand that AI has the power to truly transform the global economy.
Here are some predictions from some reliable sources.
In a recent analysis, the International Monetary Fund (IMF) estimates that 40% of global jobs will be affected by AI. In “developed” countries like the United States, that number can reach 60%.
PwC, one of the “Big Four” accounting firms, believes that AI could add $15.7 trillion to the global economy by 2030.
McKinsey & Company, one of the world’s largest consulting firms, estimates that generative AI alone could add $4.4 trillion to the economy annually. For comparison, the UK’s total gross domestic product (GDP) is $3.1 trillion.
One of the best ways to invest is through exchange-traded funds (ETFs). These provide an easy way to gain exposure to a collection of stocks (and other assets) by purchasing just one security. ETFs are very similar to mutual funds, except that they can be bought and sold like individual stocks, and they typically have lower fees.
Many of the most popular are broad market ETFs that track indexes like the S&P 500, such as the Vanguard S&P 500 ETF. However, many ETFs are narrowly targeted and invest in specific industries or industry sectors, such as AI.
So where should you invest $500? ETFs are extremely popular, and no sector is more talked about than AI, so there are plenty of options. There are currently around 40 products on offer, but the top five by assets under management (AUM) are:
iShares US Technology ETF
Fidelity MSCI Information Technology Index ETF (NYSEMKT: FTEC)
First Trust Dow Jones Internet Index Fund
iShares Extended Tech Sector ETF (NYSEMKT:IGM)
iShares Global Tech ETF
You’ll notice a lot of overlap here with the larger technology industry. There are more in-depth options focused on smaller AI-native companies. However, I believe that offering a wider range of products is a better option. The more concentrated the ETF, the higher the risk.
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The Fidelity MSCI Information Technology Index ETF has the lowest cost with an expense ratio of just 0.08%, but in my opinion, the iShares Expanded Tech Sector ETF is the best option and where you would invest your $500.
At just 0.4%, it’s relatively low cost at $40 per year per $10,000 invested. However, it has performed slightly better than Fidelity’s options over the past few years, making up for the small increase in cost. In fact, the Expanded Tech Sector ETF has outperformed all of these AI ETFs and the entire Nasdaq this year.
I also like the composition of its holdings. Fidelity is highly concentrated at the top, with the top three accounting for approximately 44% of the fund’s value. By contrast, the iShares Expanded Tech Sector ETF invests about 25% in its top three stocks.
In addition, Metaplatform (NASDAQ:Meta) is one of the iShares ETF’s key holdings, but it’s noticeably absent from Fidelity’s fund. FTEC holds 296 stocks, but Meta is not on the list. I believe Meta is one of the most powerful AIs in a major technology company. I’m not alone in this. Meta is one of the top five holdings of many of Wall Street’s top hedge funds.
The company continues to make contributions in its core business. We currently operate the 1st, 3rd, 4th, and 7th most popular social media platforms in the world, reaching 3.29 billion people per day. This impact has made the company’s advertising space extremely valuable, with Meta achieving double-digit revenue growth every quarter since Q1 2023.
And now, the company’s AI efforts are paying off, further accelerating advertising success through increased efficiency and enhanced targeting algorithms. The successful release of its flagship product, Meta AI, proves that the company can create an AI platform that people actually like. Even Apple is struggling. I believe these early successes are just a taste of what’s to come. Meta’s long-standing commitment to AI research will lead to products that significantly enhance, if not completely transform, its business.
Whether you have $500 or $500,000, you could do worse than investing in companies that power the AI revolution. ETF funds like the iShares Expanded Tech Sector fund are a great way to do this quickly, easily, and cheaply.
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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. Johnny Rice has no position in any stocks mentioned. The Motley Fool has positions in and recommends Apple and Meta Platforms. The Motley Fool has a disclosure policy.
“The Smartest Artificial Intelligence (AI) ETFs You Can Buy Now for $500” was originally published by The Motley Fool.
