Why the S&P 500 is Thriving, with AI Giants Leading the Charge

The S&P 500 (SNPINDEX: ^GSPC) has been performing impressively this year, boasting a 28% increase with only one month left in 2024. This rise exceeds its average annual return since its inception in 1957 by more than double.

Since the S&P 500 is market cap-weighted, larger companies have a more significant impact on its performance. This is evident as shares of Nvidia (NASDAQ: NVDA), now valued at $3.3 trillion, have skyrocketed by 187% in 2024.

However, Nvidia isn’t the only massive company enjoying significant gains. Meta Platforms and Amazon have also seen increases of 65% and 38%, respectively. Investors lacking exposure to these AI leaders have likely lagged behind the overall performance of the S&P 500 this year.

For those looking to invest in AI without directly buying stock, an exchange-traded fund (ETF) could be a convenient option. The Roundhill Generative AI and Technology ETF (NYSEMKT: CHAT) includes many top AI stocks and can be purchased for as little as $40.

Image source: Getty Images.

The Focus on AI in ETFs

Research from Goldman Sachs indicates that artificial intelligence could add about $7 trillion to the global economy by 2032. The Roundhill ETF invests in firms developing the systems and software behind AI advancements.

This ETF holds only 48 stocks, with the top five making up 26.4% of its total value, leading to a highly concentrated portfolio. Notably, these top five companies are frontrunners in the AI industry.

Data source: Roundhill Investments. Portfolio weightings as of Dec. 1, 2024.

Nvidia is the leading supplier of advanced graphics processing units (GPUs) essential for AI model development. The demand for these chips is far exceeding supply, with Nvidia’s data center revenue demonstrating triple-digit growth for the last six quarters. The introduction of their new Blackwell GPUs promises further sales boosts.

Meanwhile, Microsoft and Alphabet are at the forefront of AI software development. Microsoft has launched its Copilot virtual assistant in partnership with OpenAI, and Alphabet has created a suite of models named Gemini. Both companies are expanding their AI services in cloud computing, enabling businesses globally to utilize these advancements.

Meta has made a mark with its Llama family of large language models, integrating these into innovative features for platforms like Facebook and Instagram.

Other notable AI stocks in the Roundhill ETF include Palantir Technologies, Advanced Micro Devices, Oracle, and Amazon.

Performance Comparison: Roundhill ETF vs. S&P 500

Since its launch in May 2023, the Roundhill ETF has produced a 57% return, surpassing the S&P 500’s 47% in the same timeframe. This year alone, the ETF has gained nearly 29%.

The fund has an expense ratio of 0.75%, which covers management costs but is higher compared to funds like Vanguard that typically charge around 0.1% or less. While specialized funds often come with higher fees, these costs could diminish long-term investor returns.

The ETF’s future performance hinges on AI’s success. Should AI development align with Goldman Sachs’ projections, the companies in this ETF may see significant growth. On the contrary, if expectations fall short, stocks like Nvidia could lose substantial value.

Morgan Stanley estimates that four key companies—Microsoft, Alphabet, Amazon, and Meta—will invest around $300 billion in AI infrastructure in 2025, indicating strong confidence in AI’s future. This investment will inevitably benefit suppliers like Nvidia and AMD.

Thus, the Roundhill ETF appears positioned for positive performance in the near future. However, due to its concentrated nature, it is advisable to consider this ETF as part of a diverse portfolio that includes other options with little or no AI exposure.

Is It Time to Invest $1,000 in Roundhill Generative AI & Technology ETF?

Before committing funds to the Roundhill Generative AI and Technology ETF, it’s worth noting:

The Motley Fool Stock Advisor team recently pinpointed what they believe to be the 10 best stocks for investment currently, and the Roundhill ETF did not make this list. The selected stocks are considered likely to offer significant returns in coming years.

Reflecting on history, had you invested $1,000 in Nvidia when it was recommended on April 15, 2005, you would now have approximately $849,539!*

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*Stock Advisor returns as of December 2, 2024

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 for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, 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, Goldman Sachs Group, Meta Platforms, Microsoft, Nvidia, Oracle, Palantir Technologies, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends 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.