The AI Revolution: Unpacking Investment Opportunities and Risks

Artificial intelligence (AI) is being hailed as a major financial opportunity in today’s market, yet reaping profits from it may not be straightforward. History teaches us that technological advancements can lead to unpredictable outcomes for investors.

For instance, Pets.com was considered a success story during the internet boom in the late 1990s, but it ultimately collapsed during the dotcom crash of the early 2000s due to its inability to make a profit. In contrast, Amazon evolved into a global e-commerce giant, primarily due to its cloud computing profits, a segment that was only introduced in 2006.

Given the uncertainty surrounding how the current AI landscape will evolve, investing in an exchange-traded fund (ETF) may be more beneficial for most investors than selecting individual AI stocks.

The Roundhill Generative AI and Technology ETF (NYSEMKT: CHAT) includes nearly every significant AI stock, making it an attractive choice. Here’s why it stands out.

Image source: Getty Images.

Access Leading AI Stocks with One Investment

The Roundhill ETF focuses on companies creating platforms, infrastructure, and software essential to the AI industry. As an actively managed fund, Roundhill Investments regularly adjusts its holdings to capitalize on new developments in the sector.

While the ETF consists of just 49 stocks, its top three accounts for 18.8% of the portfolio’s total value, identifying it with three of the leading AI firms globally:

Data source: Roundhill. Portfolio weightings are accurate as of Oct. 24, 2024, and are subject to change.

Nvidia is a forerunner in designing graphics processing units (GPUs) for data centers, with its chips being the most effective for AI tasks. Last quarter, Nvidia achieved a historic $26.3 billion in data center revenue, marking a 154% jump from the same quarter the previous year, largely driven by GPU sales.

The company is set to release its new GB200 GPU systems, which promise up to 30 times the performance of its older H100 models. CEO Jensen Huang described the demand for Blackwell chips as “insane,” predicting they will usher in a new growth phase for Nvidia.

Big-name clients like Alphabet and Microsoft heavily rely on Nvidia for their AI GPU needs, using these chips to power their cloud services while also developing proprietary AI assistants, such as Alphabet’s Gemini and Microsoft’s Copilot, which utilizes technology from OpenAI.

Beyond its top positions, the Roundhill ETF also features notable AI companies such as Meta Platforms, Advanced Micro Devices, Broadcom, Oracle, Apple, and Amazon.

Strong Performance Against the S&P 500

Since its launch in May 2023, the Roundhill ETF delivered an impressive 27.1% return this year, surpassing the 22.5% gain of the S&P 500 index (SNPINDEX: ^GSPC).

With an expense ratio of 0.75%, investors should consider that while this amount is higher than those of some Vanguard ETFs charging around 0.1% or less, a well-performing ETF can justify the premium cost.

AI is projected to significantly boost the global economy. A report from the International Data Corporation estimates that AI could add $19.9 trillion to global economic output by 2030. If these forecasts prove accurate, the Roundhill ETF stands to benefit greatly in the years ahead.

However, should AI not deliver on its promises, companies like Nvidia may see a steep decline in value, affecting the ETF’s performance. It’s prudent for investors to hold this ETF as part of a diversified portfolio that includes diverse stocks and funds.

Is Investing $1,000 in Tidal Trust II – Roundhill Generative AI & Technology ETF Wise?

Before investing in the Tidal Trust II – Roundhill Generative AI & Technology ETF, it’s essential to consider the context:

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For perspective, if you had invested $1,000 in Nvidia when it was recommended on April 15, 2005, that investment would now be worth $867,372!*

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook, 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 has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Oracle. The Motley Fool recommends Broadcom and the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.