Three Exchange-Traded Funds (ETFs) specializing in Artificial Intelligence, suitable for long-term growth investments.

Three Exchange-Traded Funds (ETFs) specializing in Artificial Intelligence, suitable for long-term growth investments.

Artificial intelligence (AI) has moved past buzzword status to become a significant business technology transformation tool. Major corporations today invest billions in AI solutions across various sectors such as healthcare and manufacturing, giving rise to potentially eye-popping trillion-dollar markets.

AI-related stocks and market returns dominated headlines in 2024, leaving even experienced investors grappling with discerning hype from reality. Most companies remain in their early stages of development, burning through capital while treading uncertain paths to profitability. Exchange-traded funds (ETFs) serve as a safer way for investors to engage with this developing technology by distributing risk across numerous companies.

The following ETFs deliver distinct approaches to AI investing, ranging from established tech giants to pioneering innovators:

Cost-effective tech stalwart

The Vanguard Information Technology ETF (VGT -1.56%) offers extensive exposure to tech corporations spearheading AI adoption. Due to its minimal 0.10% expense ratio and low 15.4% churn rate, this passively managed ETF is an efficient method for long-term investors.

Semiconductors comprise 28.8% of the fund's portfolio, while software companies account for 20.2%. The balance provides exposure to both AI infrastructure builders and companies implementing the technology.

Notable holdings in the Vanguard Information Technology ETF include AI pioneers such as Nvidia, Microsoft, and Apple, as well as up-and-coming tech players like Confluent and Silicon Laboratories. Since its launch in 2004, the fund has surpassed the benchmark S&P 500's performance thanks to technology's growing influence -- and AI's role specifically -- on a global scale.

Growth through innovation

The Invesco QQQ Trust ETF (QQQ -1.33%) tracks the 100 biggest non-financial Nasdaq companies, offering investors access to major AI adopters and innovators. With a moderate 0.20% expense ratio, this passively managed fund offers cost-effective access to forward-thinking large-cap companies.

The Invesco QQQ Trust's impressive performance history reflects technology's market leadership. Over the past 10 years, it has produced a remarkable 426% total return (including distributions and assuming reinvestment), significantly outpacing the S&P 500.

Top holdings in the Invesco QQQ Trust encompass AI pioneers like Microsoft, Nvidia, and Facebook (now Meta Platforms). The ETF's $291 billion in assets and high trading volume provide superb liquidity for investors pursuing active portfolio management.

Emerging AI prospects

The ARK Autonomous Technology & Robotics ETF (ARKQ -2.20%) focuses on companies developing groundbreaking AI applications. As an actively managed fund, it incurs a more substantial 0.75% expense ratio than the other ETFs on this list compared to cover research and portfolio management costs.

The ARK Autonomous Technology & Robotics ETF's concentrated portfolio, consisting of 30 to 50 equities for an average holding period, offers focused exposure to innovative companies ion the fields of robotics, autonomous vehicles, and AI. Key investments include Tesla, Kratos Defense, and UiPath, opening up investment opportunities in various AI developers and applications.

The fund's performance shows both the potential and risks of early-stage technology investing. While delivering an average annual return of 12.57% since its inception, this fund has experienced substantial volatility, making it an ideal fit for risk-tolerant investors.

In the context of investing in AI, experienced investors might find it challenging to distinguish hype from reality, as was evident in 2024. To diversify their portfolio and engage with this developing technology in a safer manner, they can consider investing in exchange-traded funds (ETFs) like the Vanguard Information Technology ETF (VGT), which has a low expense ratio and exposes investors to tech giants like Nvidia, Microsoft, and Apple.

Regardless of the ETF chosen, it's essential for investors to be aware of the associated risks, particularly when investing in emerging AI prospects, such as the ARK Autonomous Technology & Robotics ETF (ARKQ), which has a higher expense ratio due to its active management and focus on innovative companies like Tesla and UiPath.

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