2 Ways to Safely Invest in AI (Artificial Intelligence)

Here are two safe(r) ways to invest in AI.

Tony Dong, MSc, CETF® ❯

Tony started investing during the 2017 marijuana stock bubble. After incurring some hilarious losses on various poor stock picks, he now adheres to Bogleheads-style passive investing strategies using index ETFs. Tony graduated in 2023 from Columbia University with a Master's degree in risk management. He holds the Certified ETF Advisor (CETF®) designation from The ETF Institute. Tony's work has also appeared in U.S. News & World Report, USA Today, NYSE ETF Central, NASDAQ Fundinsight, Cboe ETF Market, TheStreet, and Benzinga. He is the founder of ETF Portfolio Blueprint (https://etfportfolioblueprint.com)

Published August 28, 2024 8:00 pm EDT

You might think you need a dedicated AI exchange-traded fund (ETF) or to cherry-pick specific AI stocks to get involved in artificial intelligence investments.

However, many broad market indexes already incorporate substantial AI exposure. For instance, between March 15 and May 23, 2024, FactSet reports that 199 S&P 500 companies mentioned the term “AI” during their earnings calls.

Considering this, let’s explore two safer ways you can invest in AI via an index ETF.

S&P 500 ETFs

Funds like the BMO S&P 500 Index ETF (TSX:ZSP) are fantastic as core portfolio holdings, and they also bring significant exposure to AI, given their composition.

For instance, ZSP allocates a substantial 32.6% of its portfolio to tech stocks, many of which are top players in the AI field. This ETF employs a market cap weighting strategy, which means the larger the company, the greater its influence.

One of the biggest advantages of S&P 500 ETFs like ZSP is their affordability – the management expense ratio (MER) is only 0.09%, which translates to just $9 in fees per $10,000 invested.

Nasdaq-100 ETFs

For those looking to ramp up their tech exposure, the Nasdaq-100 Index is an astute choice. This index tracks the 100 largest non-financial stocks listed on the Nasdaq exchange.

A popular ETF that follows this index is the BMO NASDAQ 100 Equity Hedged to CAD Index ETF (TSX:ZQQ).

ZQQ holds only 100 stocks, with a hefty 51.3% weighting in the tech sector, making it more top-heavy compared to the broader S&P 500 ETFs like ZSP. This focus means more exposure to major AI players and tech innovators.

However, it’s important to note that ZQQ is also more expensive with a 0.39% MER. It is currency hedged, which neutralizes the impact of USD and CAD fluctuations on its performance, providing a smoother investment.

The Foolish takeaway

You don’t need to risk it on single stocks or expensive thematic AI ETFs when it comes to AI exposure. Major indexes like the S&P 500 and Nasdaq-100 already have palpable exposure to AI stocks, and ETFs like ZSP and ZQQ are liquid, affordable, and safer.