Analysis: Nvidia's dizzying rally spurs rush into AI-themed ETFs

I G Petrochemicals

19/03/2024 05:00

By Suzanne McGee
       March 19 (Reuters) - The fervor around artificial
intelligence has sparked a gold rush into AI-themed ETFs, as
investors seek fresh ways to play the burgeoning technology
following breathtaking rallies in market darlings such as Nvidia
 NVDA.O .
    The funds run the gamut from those offering a bouquet of the
biggest AI winners to more esoteric themes such as robotics and
sound generation. All told, the universe of AI-themed ETFs
traded in the United States has soared to $6.88 billion as of
the end of February from $2.55 billion a year earlier,
Morningstar data showed. 
    "It's still so early in the evolution of this category ...
that investors are still sorting through the possibilities,"
said Will Rhind, founder and CEO of GraniteShares. 
    The exuberance surrounding AI funds echoes previous waves of
investor excitement for other technologies viewed as
transformative, from dotcom stocks to electric vehicles. 
    Each wave introduced major new businesses to the economy and
generated astonishing wealth for founders like Jeff Bezos and
Elon Musk as well as ordinary investors. At the same time, many
of the companies whose shares soared in previous market booms
eventually saw their stock prices fizzle, a fate that may await
some of the market’s current AI favorites. 
    For now, investors are responding with enthusiasm and Nvidia
- whose chips are seen as the gold standard in AI - continues to
grab the spotlight.
    The assets of the GraniteShares 2x Long NVDA Daily ETF
 NVDL.O , which seeks to deliver twice the daily return of the
chipmaker’s shares and is not included in Morningstar’s data on
AI-themed funds, doubled to $2 billion earlier this month. Those
flows have followed the nearly 80% climb in Nvidia's shares so
far this year, after the company's shares tripled in 2023.
    At its developer conference on Monday, the company unveiled
the Blackwell B200, an AI chip it says is up to 30 times
speedier than its previous chip.
    Smaller ETFs have also prospered. Assets in the Themes
Generative Artificial Intelligence ETF  WISE.O  tripled to about
$20 million from $7.5 million earlier this month, said Taylor
Krystkowiak, investment strategist at Themes ETFs.
    Seven of the 18 diversified AI-related ETFs that Morningstar
tracks have launched within the last three years. An eighth was
redesigned to target AI more directly.
    The funds have had collective inflows of $2.68 billion in
the last 12 months, according to Morningstar. That is almost
double the inflows into global real estate ETFs, the company
said.     
    
    Whether investor excitement about the possibilities of AI is
fueling a bubble or just contributing to a strong bull run in
stocks is unclear. 
    The S&P 500  .SPX  is up nearly 8% year-to-date, fueled in
part by rallies in AI beneficiaries such as Nvidia and Microsoft
 MSFT.O , following a 24% gain last year. The AI fervor has also
driven parabolic moves in the shares of other companies,
including a more than 250% gain in Super Micro Computer
 SMCI.O , which joined the S&P 500 this week.
    Some investors appear to be limiting their exposure to
Nvidia and other stocks that have notched big moves. ETF issuer
Global X found that its Global X Artificial Intelligence and
Technology ETF  AIQ.O , which caps Nvidia exposure to 3%, has
tripled in size over the last three months. 
    By comparison, its Robotics and Artificial Intelligence ETF
 BOTZ.O , which has more than 20% of its assets invested in the
chipmaker, grew by 20%.
    Others are focused on finding new areas that will benefit
from AI, said Rene Reyna, head of thematic ETF strategy at
Invesco and manager of the Invesco AI and Next Gen Software ETF
.
    “The conversations we have with investors don’t focus on
finding the next Nvidia, but more on recognizing that these
technologies are changing the landscape and finding ways to get
exposure to some of this growth,” he said. 
    Analysts at Morgan Stanley last week published a list of 480
individual stocks that may benefit from AI. Less obvious
beneficiaries included Walmart  WMT.N  and Caterpillar  CAT.N .
The bank also recommended exploring "less crowded sub-themes"
like the integration of AI and smartphones. 
    ETFs are also scrambling to provide offerings for every
taste. Robo Global Robotics & Automation ETF  ROBO.P 
supplements its Nvidia exposure with holdings in stocks some
expect to benefit from AI technology, like Intuitive Surgical
 ISRG.O . The Roundhill Generative AI & Technology ETF  CHAT.N 
is focusing on companies it expects to be beneficiaries of
generative AI, including Salesforce.com  CRM.N  and Marvell
Technology  MRVL.O .
    Still, at least one flavor of AI-themed ETF has failed to
win fans. The WisdomTree US AI Enhanced Value ETF  AIVL.P ,
which uses AI to select its portfolio, has seen outflows of
$48.26 million in the last 12 months and lags the S&P 500.
    One possible reason the fund and others in its category have
underperformed: many of them lack a position in Nvidia and other
AI-related stocks. 
    
  

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
AI enthusiasm sparks ETF asset growth    https://reut.rs/48Z03Tg
Nvidia unveils flagship AI chip, the B200, aiming to extend
dominance     urn:newsml:reuters.com:*:nL2N3FW24A
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Suzanne McGee in New York
Additional reporting by Lewis Krauskopf in New York
Editing by Ira Iosebashvili and Matthew Lewis)
 ((Suzanne.McGee@thomsonreuters.com; 917-285-4385;))