Right now, two of the hottest sectors are AI and Quantum Computing
Broad Street Breaks Down the Best AI and Quantum Computing ETF’s and Their Holdings
You probably interact with artificial intelligence (AI) more often than you think. It’s the algorithm arranging your Netflix (NASDAQ:NFLX) menu, the software expediting your Amazon (NASDAQ:AMZN) package, and the brains behind many of the smartphone apps you use every day.
If you want to get portfolio exposure to AI companies but don’t wish to identify individual AI stocks, you can invest in an AI-focused exchange-traded fund (ETF). AI ETFs provide exposure to a broad range of the best AI companies, eliminating the need to research and choose individual stocks on your own.
Best AI ETFs
Global X Robotics & Artificial Intelligence ETF
ROBO Global Robotics and Automation Index ETF
iShares Robotics and Artificial Intelligence ETF
First Trust Nasdaq Artificial Intelligence ETF
Learn more about each of these artificial intelligence ETFs
1. Global X Robotics & Artificial Intelligence ETF
Established in 2016, the Global X Robotics & Artificial Intelligence ETF (NASDAQ:BOTZ) is a fund that seeks to “invest in companies that potentially stand to benefit from increased adoption and utilization of robotics and artificial intelligence.” That includes enterprises working in industrial robotics, automation, non-industrial robots, and autonomous vehicles.
BOTZ currently holds 37 stocks. Its top five holdings, which account for about 40% of the fund’s assets, are:
Upstart Holdings (NASDAQ:UPST): Operates a cloud-based AI lending platform connecting banks and other lenders with borrowers.
Nvidia (NASDAQ:NVDA): Semiconductor maker whose chips are used in a wide variety of applications — including autonomous vehicles, virtual computing, and cryptocurrency mining — and are central to many AI technologies.
Intuitive Surgical (NASDAQ:ISRG): Maker of the da Vinci robotic surgical system, which allows for minimally invasive surgeries with precise control.
Keyence (OTC:KYCCF): Japanese company that makes factory automation products such as sensors and scanners.
ABB (NYSE:ABB): Swiss maker of industrial automation and robotics products for use in utilities and infrastructure.
BOTZ offered a modest dividend yield of 0.22% at the time of this writing, but it is better suited as a growth-oriented investment. Its expense ratio of 0.68% is higher than what you’d pay for an index fund, but it’s also reasonable for the fund’s history of outperformance.
2. ROBO Global Robotics and Automation Index ETF
The ROBO Global Robotics and Automation Index ETF (NYSEMKT:ROBO) is focused on companies driving “transformative innovations in robotics, automation, and artificial intelligence.” ROBO invests in companies that are primarily focused on AI, in addition to cloud computing and other technology companies.
ROBO holds 83 different stocks, with no single one accounting for more than 1.9% of the ETF’s value. Its top five holdings comprise only about 9% of the fund’s total value. These five companies include Intuitive Surgical, the robotic surgical systems maker described above, and four more:
iRhythm Technologies (NASDAQ:IRTC): A digital healthcare company focused on cardiac monitoring.
Brooks Automation (NASDAQ:BRKS): A manufacturing automation company that provides a range of services for semiconductors and life sciences companies.
Stratasys (NASDAQ:SSYS): A maker of 3D printing systems.
Kardex Holding (OTC:KRDXF): A Swiss logistics company that provides automated storage solutions.
Since its inception in 2013, ROBO has essentially matched the return of the S&P 500, it trails the broad-market index with dividends factored into the return. ROBO’s dividend yield is a modest 0.26%, and its expense ratio is 0.95%.
3. iShares Robotics and Artificial Intelligence ETF
The iShares Robotics and Artificial Intelligence ETF (NYSEMKT:IRBO) aims to track the results of an index of developed and emerging market companies that could benefit from the long-term opportunities in robotics companies and artificial intelligence.
IRBO was formed in 2018 and has less than $1 billion of assets under management. With 104 stock holdings, it’s well-diversified. Many of its top holdings also give investors exposure to fast-growing small-cap companies.
The fund’s top five investments, which account for around 6% of IRBO’s assets, are:
Ambarella (NASDAQ:AMBA): A semiconductor company that designs video components that go on chips.
Nemetschek (OTC:NEMTF): A Germany-based software company servicing the architecture, engineering, construction, and media and entertainment industries.
Hubspot (NYSE:HUBS): A provider of cloud-based customer relationship management software.
Alchip Technologies (3661. TW): A Taiwanese semiconductor company that specializes in design and manufacturing.
Splunk (NASDAQ:SPLK): Another cloud stock that uses artificial intelligence and machine learning to improve its data platform.
As you can see, IRBO has outperformed the S&P 500 by a wide margin since the start of the pandemic. These recent gains are likely a reflection of how strongly cloud computing companies are performing in the recovery.
IRBO’s expense ratio is competitive at 0.47%, and its dividend yield at the time of this writing is a healthy 0.6%. The fund’s performance is likely to be heavily influenced by the overall performance of cloud stocks as it seems more exposed to cloud stocks and chipmakers than AI companies.
4. First Trust Nasdaq Artificial Intelligence and Robotics ETF
First Trust Nasdaq Artificial Intelligence and Robotics ETF (NASDAQ:ROBT) seeks to track the Nasdaq CTA Artificial and Robotics Index, which is made up of companies engaged in artificial intelligence and robotics in technology, industrials, and other sectors.
The ETF, started in 2018, surged during the pandemic, in part because tech stocks make up more than 60% of its holdings. The ETF currently owns 108 stocks, and the top five include Ambarella and four others:
Gentex Corporation (NASDAQ:GNTX): A maker of automated and non-automated auto parts.
Dynatrace (NYSE:DT): A provider of a software intelligence platform that monitors IT performance.
Elbit Systems (NASDAQ:ESLT): An Israel-based maker of products for defense, homeland security, and commercial aviation operations.
Cadence Design Systems (NASDAQ:CDNS): A designer of software and hardware building blocks for a wide range of products.
The First Trust ETF offers an expense ratio of 0.65% and a dividend yield of 0.19%. Although its trading history is relatively short, you can see that it’s beaten the S&P 500.
Now let’s look at Quantum computing stocks…
Quantum computers are continually improving and becoming more affordable to develop, and the advent of cloud computing is making quantum technology even more accessible for researchers and software developers. Computing power needs are ballooning as the digital economy expands, with spending on global cloud computing alone predicted to rise to $1 trillion annually within the next decade. Quantum computing could emerge as a key technology in the decade ahead.
Top quantum computing stocks in 2023
While quantum computing pure-play companies are few, many tech businesses are increasing their activity in the quantum realm. A number of companies creating software for quantum computers also exist such as security software start-up Arqit Quantum (NASDAQ:ARQQ) and Quantum Computing (NASDAQ:QUBT). A quantum computing ETF is also available to get more general exposure to this nascent industry.
Here are some top companies having a hand in the actual development of quantum computers:
IonQ (NYSE: IONQ) Market cap $849.8 million The first pure-play publicly traded quantum computing stock, which had its IPO via a special purpose acquisition company (SPAC) merger earlier this year.
Microsoft (NASDAQ: MSFT) Market cap $1.8 trillion. The software giant with a hand in all things technology, including labs dedicated to developing quantum computers.
Alphabet (NASDAQ: GOOGL), (NASDAQ:GOOG) Market cap $1.2 trillion. The parent of Google also has a growing cloud computing segment and a large investment arm.
Nvidia (NASDAQ: NVDA) MC $414.2 billion. An emerging leader in semiconductor design and software for next-gen computing development.
Honeywell (NASDAQ: HON) MC $144.1 billion. An industrial conglomerate that developed its own quantum computer and is set to merge its quantum computer services with a quantum software start-up.
IBM (NYSE: IBM) MC $130.4 billion. The legacy tech giant is now refocused on cloud computing needs, including a quantum computing segment.
IonQ recently went public via a merger with the special purpose acquisition company (SPAC) dMY Technology Group III. IonQ is a start-up stage quantum computing company, and it’s the first pure-play quantum computer company to become publicly traded.
IonQ has one quantum computer currently in operation and plans to use the cash proceeds from the SPAC merger to build a network of quantum computers accessible from various cloud services. IonQ’s orientation toward cloud computing is illustrated by its partnerships with Microsoft, Amazon’s (NASDAQ:AMZN) Web Services (AWS), and Google Cloud. The Japanese telecommunications company and tech investor Softbank Group (OTC:SFTBF) also has invested in IonQ and is partnering with the company to bring quantum computing power to the many other tech companies in its portfolio.
IonQ generates little in the way of revenue right now and is not yet profitable. It will likely continue to spend heavily to continue developing its product and business for at least a few years. Investing in this start-up is a speculative play. It could be the most profitable way to invest in quantum computing if IonQ is successful, though, since the company thinks the quantum computing industry could be worth $65 billion annually by 2030.
The software titan researches and develops all sorts of technology, and quantum computing technology is no exception. Quantum computers need special refrigeration, hardware designed at microscopic levels, and special software, all of which Microsoft is developing in its labs. Via its massive cloud platform Azure, Microsoft also offers access to quantum computing services.
Quantum computing tech probably won’t be a significant driver of Microsoft’s financial performance anytime soon, but the company is nonetheless helping to develop the next generation of computing technology.
Alphabet company Google, the third-largest public cloud computing platform, has developed its own quantum computing chips branded as Sycamore. The tech behemoth is using quantum computing to advance its artificial intelligence (AI) software systems.
Google’s interest in better, faster, and smarter methods of computing stems from its leading role in internet search. The company is responsible for organizing massive amounts of digital data, and it can profit significantly by helping organizations of all types to leverage the power of that information. Quantum computing coupled with AI may provide a way for Google to improve the efficiency of large computing systems and is central to the company’s efforts to innovate.
Nvidia is quickly emerging as the global leader in advanced semiconductor designs, powering next-gen tech with its graphics processing units (GPUs) that accelerate computing power. Nvidia is developing quantum computers using GPUs, retaining its leadership role in developing sophisticated circuitry design. The company is also a leader in AI and machine learning.
Nvidia is leveraging its software developed for GPUs to support the development of quantum computing. It has released cuQuantum, a software development kit designed to help software developers build workflows on quantum computing.
Honeywell is best known as an industrial manufacturer that produces everything from aerospace equipment to advanced construction materials to medical devices. But Honeywell is also a technology firm, and its diverse work includes quantum computing.
Honeywell has its own quantum computer, which it uses internally for research and with many industrial partners to develop new products and services. Honeywell’s quantum computing platform is also available via public cloud services such as Microsoft Azure. However, the company recently announced it plans to spin off Honeywell Quantum Services as a separate entity and merge it with start-up Cambridge Quantum Computing. Honeywell will remain the controlling shareholder of the new entity.
IBM is the legacy technology firm that is refocusing on cloud computing opportunities. It also has its own quantum computer, which is available for commercial use via the company’s IBM Quantum Services business unit. More than 140 research organizations and companies, ranging from financial services businesses to automakers to energy producers, use IBM’s quantum computing services.
The company recently announced it struck a new deal with government contractor Raytheon Technologies (NYSE:RTX) to develop AI and quantum computing for aerospace, defense, and intelligence industries. The U.S. government will be a top customer of the research collaboration.
We are currently working an a report highlighting AI and Quantum computing stocks with the most growth potential.
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