In the rapidly evolving landscape of artificial intelligence (AI), investors are eagerly seeking opportunities to capitalize on this transformative megatrend. AI-focused exchange-traded funds (ETFs) have emerged as a popular vehicle for gaining exposure to the AI industry, and one such fund is poised to outshine its competitors. The WisdomTree Artificial Intelligence and Innovation Fund (WTAI) may be flying under the radar with a modest $13 million in assets under management (AUM), but its potential for solid year-to-date gains and thoughtful diversification makes it a hidden gem worth considering.
AI: A Transformative Megatrend
According to WisdomTree, AI is a megatrend with the power to shape nearly every aspect of our lives and work on a global scale in the years to come. While the long-term growth potential of AI is undeniable, it is already making waves in various applications that impact businesses and individuals today. From chatbots and self-driving technology to industrial automation and workflow automation software, AI is revolutionizing multiple industries.
Renowned investor Stanley Druckenmiller, known for his impressive track record, believes that AI could be as impactful as the internet itself. Even amidst a predicted “hard landing” economically, Druckenmiller sees incredible opportunities in AI leaders such as Nvidia (NVDA:NSD) and Microsoft (MSFT:NSD). He particularly highlights Nvidia’s potential in AI, suggesting that even a major recession might not significantly affect the company’s stock price due to the compelling AI opportunity it offers.
Thoughtful Diversification for Enhanced Stability:
WTAI stands out by providing investors with a well-diversified and comprehensive approach to investing in AI. Unlike some competing AI-themed ETFs, WTAI avoids excessive concentration in its top holdings. With a mere 22.6% of the fund allocated to its top 10 positions, investors are protected from the volatility that comes with overexposure to a few large holdings. Nvidia, in the top position, represents only a reasonable 3% weighting.
Additionally, WTAI encompasses a wide range of AI-related technologies and applications, offering precise access to the AI megatrend. The fund focuses on four key areas: AI software, semiconductors, hardware (including autonomous vehicles, drones, robotics, and industrial automation), and “innovation,” which encompasses companies disrupting existing industries with the use of AI.
Examining the fund’s top holdings reveals the presence of leading semiconductor names critical for powering AI applications. Notably, Nvidia leads the pack in AI-specific semiconductors, with an estimated 85% market share in GPUs. However, other players like Advanced Micro Devices (AMD:NSD) and semiconductor fabrication companies such as Taiwan Semiconductor (TSM:NYE) and ASML Holding N.V. (ASML:NSD) also play pivotal roles in the AI ecosystem. WTAI also holds mega-cap tech giants like Meta Platforms (META:NSD), Microsoft (MSFT:NSD), Alphabet, and Amazon, which are making significant strides in AI technology. Furthermore, software companies like ServiceNow (NOW:NYE) and UiPath (PATH:NYE), leveraging AI to streamline and automate workflows, feature prominently in the portfolio.
Strong Smart Scores and Analyst Sentiment:
WTAI’s top holdings boast impressive Smart Scores, indicating their market potential. The Smart Score, a data-driven and unbiased quantitative stock scoring system, rates stocks on eight different market factors. Nvidia, C3.Ai, Lattice Semiconductor, Cadence Design Systems, and ASML lead the pack with ‘Perfect 10’ Smart Scores. AMD and Infineon Technologies also receive strong ratings, with scores of 8 and 9, respectively.
Market analysts are bullish on WTAI, assigning it a Moderate Buy rating. Among the 886 ratings for WTAI, 70.56% are Buys, and 24.32% are Holds.
