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The S&P 500 delivered back-to-back annual total returns of over 25% in 2023 and 2024. The only other time that happened in the history of the index (dating back to 1957) was in 1997 and 1998, during the dot-com internet boom.
The generation sector pushed the S higher
But the dot-com bubble taught investors that picking winners and losers in an emerging industry can be incredibly difficult. This era produced success stories like Amazon, but thousands of other corporations failed. The rise of AI may produce a similar result in the long term.
That’s why buying an exchange-traded fund (ETF) that holds a portfolio of AI stocks could be the smartest way to participate in this technological revolution. Investors can buy a single percentage of the Roundhill Generative AI and Technology ETF (CHAT 1. 78%) for less than $50. Here’s why it’s worth thinking about.
ETFs can contain numbers or even thousands of individual stocks, however the Roundhill ETF only has 50. This means it is concentrated, which can be a recipe for volatility, so investors who already have a diversified portfolio of other ETFs and/or stocks.
The Roundhill ETF specifically invests in companies developing the platforms, infrastructure, and software that bring AI to life. Since this technology is still in the early stages, the list of names in those categories isn’t very long just yet.
That said, the ETF’s five most sensible holdings come with a diversity of AI stars:
Action
RoundHill ETF Portfolio Weighting
1. Nvidia
7.32%
2. Alphabet
5.67%
3. Microsoft
5. 18%
4. Metaplatforms
4,22%
5. Taiwan Semiconductor Manufacturing
3. 65%
Nvidia is the top supplier of graphics processors (GPUs) for AI data centers. Those chips have driven its growth over the last couple of years and will continue doing so going forward, but the company is now eyeing new multitrillion-dollar opportunities in areas like autonomous vehicles and robotics. Therefore, this stock certainly deserves its spot at the top of the Roundhill ETF.
Alphabet and Microsoft are also major players in the AI field, having developed their own chatbots and virtual assistants. Its cloud platforms also offer out-of-the-box computing power (powered by Nvidia chips) and long language models (LLM). , which corporations can hire to expand their own AI applications.
Aside from the five most sensible holdings in the Roundhill ETF, it owns other more sensible AI stocks, including Broadcom, Oracle, Palantir Technologies, Amazon and Advanced Micro Devices.
The Roundhill ETF was created in May 2023, so it doesn’t have a very long history for investors to analyze. However, it generated a 31% return in 2024, comfortably outperforming the S.
As I mentioned above, this ETF is too concentrated to be a complete portfolio on its own, and investors deserve to avoid putting all their eggs in one basket. But it could help boost returns from a diversified portfolio, especially if AI stocks continue to lead the market higher.
If you had invested $10,000 in the S&P 500 at the beginning of 2024, you would have ended the year with $12,502 (including dividends). But if you split that investment with 70% in the S&P 500 and 30% in the Roundhill ETF, your $10,000 would be worth $12,680.
That doesn’t sound like a huge difference in the short term, but the magic of compounding could lead to significant outperformance over the long run. Of course, AI will have to live up to its high expectations for the ETF to continue generating market-beating gains.
Citing a forecast from Goldman Sachs, Roundhill thinks AI could add a whopping $7 trillion to the global economy by 2032. Hardware suppliers like Nvidia, Taiwan Semiconductor, and Broadcom will benefit because developing AI isn’t possible without their chips and components. But a lot of the value will also come from the software side thanks to companies like Microsoft, Alphabet, Amazon, Palantir, and more.
Therefore, the Roundhill ETF is a no-brainer for investors who are not yet heavily exposed to the AI revolution.
Randi Zuckerberg, former chief market advancement officer and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Alphabet’s Suzanne Frey is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Advanced Micro Devices, Alphabet, Amazon, Goldman Sachs Group, Meta Platforms, Microsoft, Nvidia, Oracle, Palantir Technologies, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and recommends the following options: long $395 January 2026 calls on Microsoft and short $405 January 2026 calls on Microsoft. The Motley Fool has a disclosure policy.
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