AI-Focused ETFs Emerge as Top Investment Picks for 2025 Amid Semiconductor and Tech Boom

1 Unstoppable Semiconductor ETF to Buy for the 2025 Artificial Intelligence (AI) Spending Boom | The Motley Fool

Artificial intelligence (AI) could be the most transformational technology in a generation. AI chatbots like OpenAI's ChatGPT can already answer complex questions and instantly generate computer-generated text, images, and even new software code on command. The technology will only improve over time, but development isn't cheap because it requires enormous data centers filled with specialized chips from suppliers like Nvidia. Morgan Stanley predicts that Microsoft, Amazon, Alphabet, and Meta Platforms alone will spend a combined $300 billion on AI data center infrastructure and chips during 2025. That will benefit Nvidia, but significant amounts of money will also flow to other chipmakers, chip designers, and suppliers of networking equipment. Picking winners and losers won't be easy, but there's good news in that regard: Investors don't necessarily have to. The iShares Semiconductor ETF (SOXX -0.85%) is an exchange-traded fund (ETF) packed with almost every hardware stock involved in the AI revolution. It can do the picking for you and here's why it might be a great buy for 2025. It's common for ETFs to hold hundreds or even thousands of individual stocks, but since this one is highly specialized, it holds just 30 names. It exclusively invests in companies that design, manufacture, and distribute semiconductors, which makes it highly concentrated. Therefore, investors should only buy it as part of a diversified portfolio of other funds and individual stocks. With that said, the iShares ETF can provide investors with all of the exposure they need to the hardware segment of the AI spending boom. Its top five positions account for 38.3% of the total value of its portfolio, and they include some of the biggest players in this space: Data source: iShares. Portfolio weightings are accurate as of Dec. 24, 2024, and are subject to change. Broadcom makes AI accelerators (a type of chip) for hyperscale customers like Alphabet, which they use as an alternative to Nvidia's chips. Accelerators can be the cheaper option, and tech giants can customize them to suit their needs. Broadcom also makes networking equipment for data centers, including switches that regulate how fast information travels between chips and devices. Nvidia still makes the best AI chips in the world. It recently launched its new Blackwell graphics processing units (GPUs) for data centers, which offer up to 30 times more performance than its original flagship H100 GPU. The Blackwell GB200 is likely to be the most sought-after AI chip next year, and the early sales estimates make Nvidia stock look cheap right now. Advanced Micro Devices is trying to compete with Nvidia in the market for data center GPUs. It plans to start shipping a Blackwell competitor in the second half of 2025, and it will be called the MI350. But although AMD is chasing Nvidia in the data center business, it's already a leading supplier of AI chips for personal computers. This could be a big growth market in the future as more AI workloads shift from data centers to devices. Outside of its top five positions, the iShares ETF holds other important chip stocks. They include Taiwan Semiconductor Manufacturing, which fabricates many of the AI chips designed by Nvidia and AMD, and Micron Technology, which supplies industry-leading memory and storage chips for AI workloads. The iShares ETF has generated a compound annual return of 11.2% since it was established in 2001. That beats the average annual return of 8.5% in the S&P 500 over the same period. However, the ETF soared by an average of 22.7% per year over the last decade thanks to new technologies like cloud computing, enterprise software, smartphones, and AI, which accelerated the demand for chips. The S&P returned just 13.7% annually over the same period. It's unlikely the iShares ETF -- or any fund -- can grow at a compound annual rate of more than 20% in perpetuity. However, the chip sector might be in a golden age right now thanks to AI. Nvidia CEO Jensen Huang believes data center operators will spend $1 trillion to upgrade their infrastructure to meet demand from AI developers over the next few years. Therefore, the enormous spending forecast by Morgan Stanley for 2025 could grow even further in 2026, 2027, and beyond. On the flip side, if AI software isn't as revolutionary as experts predict, tech giants could reduce their spending on chips and other hardware. In that scenario, many of the stocks in the iShares ETF could lose a significant amount of value. That's why, as I mentioned earlier, investors should only buy this ETF as part of a balanced portfolio of other funds or individual stocks.

2 Artificial Intelligence (AI) ETFs to Confidently Buy Heading Into 2025 | The Motley Fool

Artificial intelligence (AI) was the dominant theme in the stock market in 2024. There were standout performances from select AI chip stocks, AI software stocks, and even energy stocks, as power-hungry data centers sent electricity demand soaring. According to Morgan Stanley, four of the world's largest technology companies alone could spend a combined $300 billion to develop AI next year. As a result, it is likely to remain the leading story in the stock market throughout 2025. But picking the individual winners and losers won't be easy. Advanced Micro Devices stock was up by 50% within the first few months of 2024, yet it's on track to end the year down by 10%. Predicting that sequence of events would have been impossible 12 months ago, especially because AMD is now a leading supplier of AI chips. As a result, most investors might be better off buying AI-focused exchange-traded funds (ETFs) instead, which can offer diversified exposure to this technological revolution. It's common for ETFs to hold hundreds or even thousands of individual stocks, but since the AI industry is still in its very early stages, most ETFs in this space only hold a few dozen names. As a result, they are highly concentrated, and investors should only buy them as part of a balanced portfolio of other funds and individual stocks. With that said, investors should look for AI ETFs with diverse exposure to the industry. In other words, a good ETF will hold shares in AI hardware companies like Nvidia, AI software companies like Microsoft, and even companies deploying AI into their legacy businesses, like Meta Platforms or ServiceNow. Even though AI is likely to create a significant amount of value, past tech booms (like the internet) have taught us that volatility is part of the journey -- some companies will hit home runs, whereas others will fail completely. By owning a slice of every AI segment, investors can maximize their chances of generating positive returns on a consistent basis. Here's why the Roundhill Generative AI and Technology ETF (CHAT -0.02%) and the iShares Future AI and Technology ETF (ARTY 0.05%) might be two of the best AI ETFs investors can take into the new year. This is a quintessential AI fund, because its sole objective is to invest in companies developing the infrastructure, platforms, and software driving the AI revolution forward. The ETF only holds 50 stocks, and it's relatively top-heavy because its five largest positions alone account for 26.6% of the total value of its portfolio: Data source: Roundhill Investments. Portfolio weightings are accurate as of Dec. 23, 2024, and are subject to change. The fund was only established in 2023, so it doesn't have a very long track record for investors to analyze. However, it has generated a whopping 38% return in 2024, crushing both the S&P 500, which is up 24%, and the Nasdaq-100, which is up 31%. The ETF has an expense ratio of 0.75%, which is the proportion of the fund deducted each year to cover management costs. That's relatively high, even for a very specialized fund. Most low-cost ETFs issued by Vanguard have expense ratios of less than 0.1%, and even the iShares ETF (which I'm about to discuss) has an expense ratio of just 0.47%. That might be the one drawback to owning the Roundhill ETF. However, it certainly made up for its high cost in 2024 thanks to its incredible return, and that might be the case again in 2025 if AI stocks continue trending higher. The iShares ETF was established in 2018 with a focus on robotics and AI, but it changed its name and its objective in August 2024. Now it aims to invest in the full value chain of companies in the AI race, including those building AI infrastructure, developing generative AI, providing AI services, and more. Like the Roundhill ETF, this fund also holds just 50 stocks. Its top five positions account for 23.4% of the total value of its portfolio, and each of them operates in the AI hardware segment: Data source: iShares. Portfolio weightings are accurate as of Dec. 23, 2024, and are subject to change. Broadcom and Arista Networks supply data center networking equipment, which helps operators optimize their infrastructure. However, Broadcom also makes AI accelerators, which are custom data center chips that some tech giants are using as an alternative to Nvidia's graphics processing units (GPUs). Advanced Micro Devices, on the other hand, is a direct competitor to Nvidia in the data center GPU market. Plus, it's a leading supplier of AI chips for personal computers, which could be a major growth driver for the company over the next few years as more AI workloads are processed on-device. The iShares ETF is a little more diversified as you look beyond its top five positions. It holds a stake in many of the AI favorites like Palantir, Amazon, Alphabet, Microsoft, and Meta Platforms. Since the iShares ETF only restructured its portfolio on Aug. 12 of this year, its performance history is extremely short. However, it's up by 24% since then, which is nearly twice the gain delivered by the S&P 500 over the same time frame. However, a four-month period isn't long enough to draw any real conclusions. Nevertheless, this looks like a great ETF to buy for 2025 based on the quality of its portfolio -- if AI remains the dominant stock market theme next year, it should perform very well.

Want to Cash In on the AI Boom in 2025? Check Out This Electrifying ETF. | The Motley Fool

AI is an electrifying technology. It can significantly reduce the time needed to perform a whole host of tasks, which has the potential to significantly boost productivity. That's leading companies to pour trillions of dollars into the semiconductor chips needed to power this technology. Those chips require a tremendous amount of electricity. For example, ChatGPT needs almost 10 times the power to process a query as the average Google search. With AI's usage accelerating, it could power a more than 160% surge in electricity demand in the U.S. by 2030 from data centers used to power AI applications, according to an estimate by investment bank Goldman Sachs. This power surge should benefit utility stocks. A great way to potentially cash in on this megatrend is to buy shares of the Vanguard Utilities ETF (VPU -0.27%). The exchange-traded fund (ETF) holds many of the top utilities that are benefiting from AI-powered electricity demand. Its value has already risen 37% this year, and it could have the fuel to continue surging in 2025. Vanguard Utilities ETF aims to measure the return of stocks in the utilities sector. It holds companies that distribute electricity, water, and natural gas, as well as those that operate power plants. The fund currently holds 70 utilities. Its top five holdings are: One notable factor about utilities is that they generate very predictable and stable earnings. That's because electricity demand tends to be very steady, and these companies operate monopoly-like businesses with rates set by government regulators. That stable cash flow allows these companies to pay above-average dividends. The ETF currently yields around 2.8%, which is more than double the S&P 500's dividend yield (around 1.2%). That dividend provides investors with a nice income stream. For example, every $1,000 invested into this ETF would generate about $28 in passive dividend income each year. That income stream is only part of the draw of this ETF. Many of its top holdings expect the AI power surge to fuel tremendous growth over the next few years. For example, NextEra Energy is a leader in developing renewable energy. The company expects demand for renewables to surge in the coming years. CEO John Ketchum stated on its third-quarter earnings conference call that: U.S. data center power demand alone is expected to increase substantially, adding approximately 460 terawatt hours of new electricity demand at a compound annual growth rate of 22% from 2023 to 2030, which could potentially enable 150 gigawatts (GW) of new renewables and storage demand over the same period. This catalyst is one factor driving its view that it will more than double its renewables and storage capacity by 2027 (from 38 GW to 81 GW). That drives its confidence that it can grow its adjusted earnings per share (EPS) at or near the upper end of its 6% to 8% annual target range through 2027. Meanwhile, it expects to deliver dividend growth of around 10% annually through at least 2026, adding to its already attractive 2.8% current yield. Constellation Energy is a leader in producing nuclear power. Earlier this year, the company signed a deal with Microsoft to restart its Three Mile Island Unit 1 generating unit, which it shut down in 2019 for economic reasons. Microsoft agreed to buy 100% of the power the unit will produce (837 megawatts) when it starts back up in 2028 to help power its cloud and AI operations. The technology company is reportedly paying more than double the current market price for this emissions-free electricity. That deal adds to the already powerful growth Constellation Energy sees ahead over the next several years. The power producer expects to grow its EPS by more than 10% annually through 2028. That should give it the fuel to increase its dividend (0.6% current yield) by around a 10% annual rate in the future.

The Smartest Artificial Intelligence (AI) ETF to Buy With $500 Right Now | The Motley Fool

Artificial intelligence (AI) captured the attention of the investing world like few things that have come before. The excitement around the technology thrust companies once known mostly to tech enthusiasts into the mainstream, while firms across Silicon Valley have seen their stocks rocket up to historic highs on the promise of AI. It's still early days for AI, and there can certainly be a danger in getting ahead of ourselves. However, you don't have to subscribe to the loftiest predictions surrounding AI -- and there are many -- to see that it has the power to be truly transformative to the world's economy. Here are just a few predictions from some reputable sources: One of the best ways to invest is through exchange-traded funds (ETFs). They offer an easy way to gain exposure to a collection of stocks (and other assets) by purchasing just one security. ETFs are a lot like mutual funds, except that you can buy and sell them the same way you would an individual stock, and they typically have lower fees. Many of the most popular are broad-market ETFs that track an index like the S&P 500, such as the Vanguard S&P 500 ETF. Many ETFs have a narrower target, however, investing in a specific industry or sector of an industry, like AI. So, where should you invest your $500? Well, ETFs are hugely popular, and no sector has as much buzz as AI, so there are plenty of options. There are currently about 40 offerings, but here are the top five by assets under management (AUM). You'll notice a lot of overlap here with the larger technology industry. There are more granular options, focusing on smaller AI-native companies. But I think a more broad-based offering is the better option: The more concentrated an ETF becomes, the riskier it becomes. While the Fidelity MSCI Information Technology Index ETF is the lowest cost, with an expense ratio of just 0.08%, for my money, the iShares Expanded Tech Sector ETF is the best option and where I would invest the $500. At just 0.4%, it is still has a relatively low cost -- $40 annually per $10,000 invested. But it has performed slightly better than Fidelity's option over the past few years, making up for the slight increase in cost. In fact, this year, the Expanded Tech Sector ETF outperformed all of these AI ETFs and the Nasdaq as a whole. I also like the makeup of its holdings better. Fidelity is much more heavily concentrated at the top, with its top three positions accounting for about 44% of the fund's value. In contrast, the iShares Expanded Tech Sector ETF has about 25% invested in its top three. Furthermore, Meta Platforms (META 2.50%) is one of the iShares ETF's top holdings, but is conspicuously absent from Fidelity's fund -- FTEC holds 296 equities, but Meta isn't among the list. I think Meta is one of the strongest AI plays among big tech and I'm not alone in this: Meta is one of the top 5 holdings of many of the premier hedge funds on Wall Street. The firm continues to deliver in core business: it currently operates the first-, third-, fourth-, and seventh-most popular social media platforms in the world, reaching an incredible 3.29 billion people a day. This influence makes its ad space immensely valuable, leading Meta to deliver double-digit revenue growth quarter after quarter since Q1 2023. And now the company's AI efforts are paying off, helping to compound its success in advertising by boosting efficiency and enhancing targeting algorithms and the successful release of its flagship product, Meta AI, proves that the company can create an AI platform people actually like, something even Apple is struggling with. I believe these early successes are just a taste of what's to come; Meta's long commitment to AI research will lead to products that will greatly enhance, if not outright transform, its business. Whether you have $500 or $500,000, you could do worse than investing in the companies fueling an AI revolution. An ETF fund like the iShares Expanded Tech Sector fund is an excellent way to do so quickly, simply, and cheaply.

1 Artificial Intelligence (AI) Stock to Buy and Hold Through 2025 and Beyond | The Motley Fool

The field of artificial intelligence (AI) isn't just some fad Wall Street is currently obsessed with but will fade into utter insignificance soon. While some of the hype will die down eventually, the technology has the potential to make corporations more efficient and increase profits over the long run. So, investing in excellent AI companies remains a great idea. In that spirit, let's consider one AI stock that looks like an excellent investment opportunity for 2025 and beyond: Meta Platforms (META 2.50%). Some companies are offering various AI-related services to corporations or consumers. Others are taking on AI-based initiatives to improve their businesses. Many, like Meta Platforms, are doing both. The company's Meta AI is a platform, available for free, that is looking to rival ChatGPT on a range of performance metrics. This AI assistant can perform tasks, from basic search queries to image generation, all for the price of a Facebook or Instagram account -- something many people already have. Besides the generative capabilities of Meta AI, Meta Platforms has released various iterations of its open-source large language model, Llama. These may be free for now, but don't think Meta Platforms doesn't plan on monetizing these efforts eventually. Elsewhere, the company has used AI to increase engagement on platforms like Facebook and Instagram through recommendation algorithms. It also helps companies looking to advertise on its websites and apps through AI-based tools that help them quickly create ads. How are all these initiatives working? Pretty well, according to the company. Meta AI had over 500 million monthly active users as of the third quarter. Meta Platforms also reported that AI-powered video-feed recommendations have helped increase the time people spend on Facebook by 8% and on Instagram by 6% this year. Further, companies using Meta's advertising tools have increased conversions by 7%. So, Meta Platforms' AI business is helping improve its financial results. In the third quarter, the company's revenue increased by 19% year over year to $40.6 billion. The company's Q3 earnings per share of $6.03 was up 37% compared to the year-ago period. Meta also ended the quarter with 3.29 billion daily active users (DAUs). Meta Platforms increasing its DAUs may not have anything to do with AI, but when they spend more time on Facebook and Instagram because of AI, that can directly impact the company's revenue. AI could be an important long-term tailwind for Meta Platforms, especially as it seeks to find more ways to monetize some of its current initiatives in the field. It's not a race. Meta Platforms acquired WhatsApp in 2014. Its monetization efforts on this platform have been slow. Meta is ramping up things like paid messaging on WhatsApp, but it represents a tiny percentage of its overall revenue. The point, though, is that Meta Platforms has a massive ecosystem. For now, it continues to make strong revenue and earnings from its advertising business. But that could change in the long run. Whether through AI, WhatsApp, e-commerce, or its metaverse ambitions, Meta Platforms will find many other monetization opportunities. Here are two other reasons to invest in the stock. First, Meta Platforms has a strong competitive advantage, particularly from the network effect. For people or businesses who are on Instagram or Facebook, these platforms only get more useful for almost any purpose as more users join. That's why Meta Platforms' ecosystem is second to none in the social media landscape, and it ensures that the company will remain a leader for the foreseeable future. Second, Meta Platforms is now a dividend-paying company. We can't call it a great dividend stock yet, but maybe it will be that in a decade. In the meantime, opting to reinvest the company's payouts will help boost what should already be strong returns in the next decade.