How Do I Choose an AI ETF for Diversified AI Exposure?

Choosing an AI ETF for Diversified Exposure00:00

The answer depends on which part of the AI opportunity investors want to own because an AI fund can mean very different types of exposure. Some funds go broad, others go narrow, and others invest across the entire AI ecosystem or value chain. Understanding those differences is one of the most important steps when choosing an AI ETF. AI exposure isn't a one-size-fits-all.

When investors say they're looking for an AI ETF, they could be talking about several different investment approaches. One way to understand those differences is to think about what we call the AI stack.

The AI Stack Framework00:31

AI is unfolding in three phases: the build-out phase, the adoption phase, and the transformation phase, and that creates opportunities across different layers of the AI stack. The AI stack consists of three layers:

• Infrastructure at the foundation
• Intelligence in the middle
• Applications and services at the top

At the foundation are things like data centers, cloud infrastructure, and computing hardware that powers AI. In the middle is the intelligence that makes AI work. At the top are the applications and the services that bring AI to consumers and businesses.

You can think of it like a layered cake. Each layer plays a different role, and together they make the broader AI ecosystem possible. Different funds can give exposure to different parts of the stack or across the broader AI value chain.

Determining Which AI ETF Is Right01:30

To determine which AI ETF is right, ask "What type of AI exposure am I looking for?" One approach is to invest across the entire AI value chain, from software and models through to the data, chips and infrastructure. Funds designed around the AI value chain opportunity include the iShares Future AI and Tech ETF (ARTY) and the actively managed iShares AI Innovation and Tech Active ETF (BAI).

If you're excited about one particular part of the value chain, like semiconductors, you can buy more precise exposure to just those names through a semiconductor ETF like SOXX.

AI's Physical Demands and Adjacent Themes02:01

A second approach is to look at themes benefiting from AI's growing physical demands. AI requires significant amounts of electricity and infrastructure. That can create opportunities in areas such as power infrastructure. Funds like POWR provide more targeted exposure to some of those adjacent themes.

Other funds, like the iShares NASDAQ 100 ETF (IQQ), may provide broader technology exposure where AI leaders are just one part of a much larger innovation portfolio. That's why it's important to look beyond the label and understand what a fund actually owns.

Three Things to Review When Choosing an AI ETF02:30

Here are three things investors should review when trying to choose the right AI ETF:

• First, look at the holdings. This will show which companies the fund holds so you can better understand whether it invests across multiple parts of the AI ecosystem or whether it concentrates on one specific layer.
• Second, check concentration. If a small number of companies make up a large percentage of the fund, your exposure may be more concentrated. That's not inherently an issue, but it is important to understand what part of the AI ecosystem that fund is concentrated around.
• Third, think about what kind of exposure you already have. If you already own a broad technology sector ETF, like the iShares US Technology ETF (IYW), or an S&P 500 fund, like the iShares Core S&P 500 ETF (IVV), you may already have meaningful exposure to companies driving AI innovation. Understanding what you already own can help you determine whether an AI-focused ETF adds something new to your portfolio.

Key Takeaways04:00

Different AI ETFs can play different roles in a portfolio. Some investors may prefer broad technology exposure, while others may prefer a more targeted approach through a fund like ARTY or BAI, which are both designed to invest across the AI value chain. The key is understanding what the fund owns, how it's constructed, how concentrated it is, and how it complements the investments you already have.

For more information on investing in artificial intelligence, explore the iShares AI investing resources and ETF lineup linked below for each fund's investment objectives and holdings. Questions about investing, AI or otherwise, can be asked on Reddit at r/iShares.