AI and Tech Stocks Propel Wall Street’s Success in 2024

Wall Street had a remarkable 2024, driven primarily by artificial intelligence (AI) and technology stocks that have led a broader market rally. In recent years, tech stocks have surged, thanks largely to advancements in AI, particularly generative AI.

The excitement around AI resulted in some leading tech funds delivering over 40% in annual returns. Experts believe that the competition in AI will escalate soon, fueled by increasing demand across multiple industries. Given the prevailing optimism, investing in tech funds like Fidelity Advisor Semiconductors Fund Class I (FELIX), DWS Science and Technology A (KTCAX), and T. Rowe Price Science & Tech (PRSCX) might be advantageous for 2025.

Market Rally Driven by Tech and AI

Numerous tech companies, large and small, are investing millions into AI research and development. Firms that have integrated AI into their offerings have reported impressive growth in recent years.

A key player in this drive is NVIDIA Corporation (NVDA), which has become a leader in the generative AI field. Its stock skyrocketed by 239% in 2023 and an additional 183% in the prior year, adding $2.2 trillion to its market capitalization, making it the world’s most valuable publicly traded company.

Nonetheless, NVIDIA is not alone in significant AI investment. Microsoft Corporation (MSFT) recently revealed plans to allocate $80 billion towards AI-powered data centers in fiscal 2025 to handle AI workloads, with the fiscal year concluding in June 2025. Microsoft has already invested over $13 billion in OpenAI, supporting their cloud services and integrating AI into products like Windows and Teams.

Additionally, major corporations like Apple, Inc. (AAPL), Meta Platforms, Inc. (META), Amazon.com, Inc. (AMZN), and Taiwan Semiconductor Manufacturing Company Limited (TSM) are making substantial investments in AI technology.

AI Integration and Market Growth

The rapid integration of AI has led to significant price increases for many tech stocks, with some companies seeing gains of 300-400% in just a few years.

The excitement around AI shows no signs of waning. The widespread adoption of OpenAI’s ChatGPT since its launch in 2022 has fueled a competitive drive among firms to develop their own generative AI technologies.

AI-specific chips are becoming critical as their applications spread across various sectors, including high-performance computing and everyday consumer products. Concurrently, demand for memory components like NAND flash and DRAM is rising, catering to specialized computing needs and enhancing AI-related tasks.

According to Bloomberg Intelligence, spending on generative AI is forecasted to jump from $67 billion in 2023 to an astounding $1.3 trillion by 2032. Moreover, a UBS report anticipates that the “Magnificent 7” U.S. tech giants will invest about $267 billion in AI applications by 2025, marking a 33.5% year-over-year increase.

Given this outlook, investing in tech funds with AI exposure seems timely.

Top 3 Investment Funds

We have identified three tech sector funds that are strong contenders for investment due to their AI exposure. These funds have demonstrated impressive annualized returns over three and five years, carry a Zacks Mutual Fund Rank of #1 (Strong Buy) or #2 (Buy), and require a minimum initial investment of $5,000, all while maintaining low expense ratios.

Each of these funds features an expense ratio below 1% and requires a minimum initial investment of $5,000.

Investors should consider mutual funds for their reduced transaction costs and the diversification they offer, eliminating the multiple commission fees tied to purchasing individual stocks.

Fidelity Advisor Semiconductors Fund Class I (FELIX) seeks capital appreciation by primarily investing in common stocks. The fund typically allocates at least 80% of its assets in companies that design, manufacture, or sell electronic components and systems. As of the last filing, FELIX held substantial AI stocks, such as NVIDIA, Taiwan Semiconductor, and Micron Technology, Inc. (MU). The fund has achieved consistent positive total returns over the past decade, boasting returns of 18.1% and 30.2% over the three and five-year benchmarks, respectively. In the last year, FELIX’s returns reached 44.09%. With a Zacks Mutual Fund Rank of #1, it features an annual expense ratio of 0.71%, below the category average of 1.01%.

DWS Science and Technology A (KTCAX) aims for capital growth, typically investing at least 80% of net assets in U.S. technology sector common stocks. Recent holdings include significant AI contributors: Apple, Meta, Microsoft, NVIDIA, and Alphabet, Inc. (GOOGL). This fund has a proven track record of positive total returns over the past decade, yielding returns of 11.9% and 20.3% over three and five years, respectively, with a notable 40.8% return in the past year. DWS Science and Technology A holds a Zacks Mutual Fund Rank of #1 and features an annual expense ratio of 0.87%, also below its category average of 1.03%.

T. Rowe Price Science & Tech (PRSCX) targets long-term capital growth by allocating at least 80% of net assets in stocks of companies poised to benefit from advancements in science and technology. While the majority of PRSCX’s assets lie in U.S. stocks, it may also invest in foreign stocks, futures, and options in pursuit of its objectives. Current holdings include key AI entities such as Apple, Meta, Microsoft, NVIDIA, and Advanced Micro Devices, Inc. (AMD). Over a decade, T. Rowe Price Science & Tech has consistently delivered positive total returns, with returns of 15.5% and 22.6% over the three and five-year marks, respectively. Recently, PRSCX achieved a 43.8% return in the past year, with a Zacks Mutual Fund Rank of #1 and an annual expense ratio of 0.71%.