Safe Ways to Invest in the AI Revolution

These ETFs could be a less-risky way of investing in AI.

Tony Dong, MSc, CETF®

Author Bio Tony turned a series of marijuana stock losses in 2017 into a self-employment venture, focused on helping retail investors build better portfolios with exchange-traded funds (ETFs). He is the founder of ETF Portfolio Blueprint and the Lead ETF Analyst for ETF Central, a partnership between Trackinsight and the New York Stock Exchange. He also currently writes freelance for MoneySense, U.S. News & World Report, Kiplinger, and 24/7 Wall St., and runs an investing-focused newsletter called The Dumb Money Dispatch with 3,300+ subscribers. Outside of finance, Tony owns a small ranch in rural British Columbia, raising goats and chickens, and also volunteers as a wildland firefighter in his local community. His background includes service in the Canadian Armed Forces as a reservist and stints in corporate security. Education Master of Science (MSc) in Enterprise Risk Management, Columbia University Bachelor of Arts (BA) in Criminology, Simon Fraser University Certified ETF Advisor (CETF®), The ETF Institute Securities Industry Essentials (SIE), FINRA Canadian Securities Course (CSC), Canadian Securities Institute Areas of Expertise ETFs, mutual funds, Berkshire Hathaway, indexing, dividend stocks, royalty trusts, REITs, infrastructure, aerospace & defence, passive income investing, portfolio construction, risk management, RRSPs & TFSAs. Social Media Profiles https://www.linkedin.com/in/tzld96/ https://www.youtube.com/@okanaganhomesteader Favorite Investment Quote "Rule No. 1: Never lose money. Rule No. 2: Never forget Rule No. 1." - Warren Buffett

Published July 27, 2024 9:15 am EDT

The artificial intelligence (AI) revolution presents a ton of investment opportunities that extend beyond the companies developing and commercializing generative AI technologies.

Consider the entire ecosystem: from upstream players like semiconductor manufacturers, who provide the essential chips, to downstream sectors like healthcare and industrial companies that increasingly integrate AI for automation.

Given the expansive range of companies involved in AI, selecting just one or two stocks might expose you to undue risk due to a lack of diversification.

Fortunately, the market offers numerous exchange-traded funds (ETFs) that can provide broad exposure to this sector. Here are my top two picks.

A chip in a circuit board says "AI" — Source: Getty Images

Nasdaq 100 ETFs

If you’re seeking a core investment with a technology tilt and significant AI exposure, the Nasdaq 100 index is an excellent choice.

This index includes 100 of the largest non-financial companies listed on the Nasdaq stock exchange, with about 50% of its composition in the technology sector, encompassing many leaders in AI.

For Canadian investors, one efficient way to gain exposure to this index is through the Global X NASDAQ-100 Index Corporate Class ETF (TSX: HXQ), which comes with a management expense ratio (MER) of 0.28%.

This ETF is especially suitable for a non-registered account because it does not distribute any dividends. This means you won’t have to worry about paying taxes on distributions; you only realize and report capital gains when you sell the shares.

Thematic AI ETFs

While the Nasdaq 100 provides solid AI exposure, it’s not entirely focused on pure-play AI companies, containing many non-tech companies as well.

For more targeted AI exposure, thematic ETFs, which are generally more expensive and narrower in focus, concentrating on a specific industry, are the way to go.

A standout option in this category is Global X Artificial Intelligence & Technology Index ETF (TSX:AIGO).

Although this ETF is relatively new, it has a robust foundation because it primarily holds shares of an older, well-established U.S.-listed Global X AI ETF that tracks the Indxx Artificial Intelligence & Big Data Index.

This arrangement allows Canadian investors to invest in AI without having to convert CAD to USD, which can save on currency exchange fees. The management fee for AIGO is 0.49%, and since it’s new, the MER hasn’t been established yet.