A.I. ETFs are rallying this year as ChatGPT hysteria heats up. What to know before jumping in

Published Sun, Feb 12 20237:22 AM ESTUpdated Sun, Feb 12 20234:42 PM EST

Anything with the words "artificial intelligence" is keeping Wall Street buzzing in 2023. From technology titans Alphabet and Microsoft, to semiconductor stocks and even healthcare names, investors and tech enthusiasts alike can't get enough of the AI frenzy overtaking Wall Street. No surprise, then, that even exchange traded funds are now being carried aloft by the those same tailwinds. So far this year, AI-focused funds such as the iShares Robotics & Artificial Intelligence Multisector and the ARK Autonomous Technology & Robotics , are higher by about 19% each. ARKQ YTD mountain The ARK Autonomous Technology & Robotics ETF so far this year The infatuation with all things "machine learning" has paid off handsomely so far for investors in 2023, helping the Nasdaq Composite outpace other benchmark averages. The whole market's up, but the tech-heavy index has risen 12% while the S & P 500 and Dow Jones Industrial Average are higher by 6.5% and 2.2%, respectively, as of Friday's close. The rally in tech marks a bright spot after 2022 brought an end to what seemed like an era of limitless growth . Big technology stocks are among the biggest winners so far this year, with companies such as Meta Platforms up 44.7% — after plunging 64% last year . Notably, artificial intelligence-focused stocks are also on a tear, buoyed by the conversational chatbot known as ChatGPT disrupting internet searches. C3.ai and BigBear.ai shares have surged more than 105% and 615%, respectively, this year. And the battle's just getting started between Alphabet and Microsoft to reign as the AI leader in the years ahead. AI BBAI YTD mountain AI stocks on a tear so far in 2023 Using diversified ETFs rather than individual stocks marks one way investors have chosen to hop on the trend as a way to limit risk. Data measuring the flows of funds also suggests investors may be getting smarter about trying to play the latest mania to hit Wall Street. Investors looking to buy these funds should take note that not every name included represents a pure play on AI and machine learning. Along with software, semiconductor and technology names, investors may find robot, electric vehicle and industrial companies in those portfolios. Take the Global X Robotics & Artificial Intelligence fund, with about $1.6 billion in assets under management, that's up more than 16% this year. Intuitive Surgical , known for the da Vinci surgical robot, is one of the ETF's top holdings, accounting for about 9% of the portfolio, according to Morningstar data. Nvidia , a purer-play AI beneficiary, ranks as the top-weighted stock, along with factory automation equipment maker Keyence. Cognex , a machine vision company, and Japan-based robotics manufacturer Yaskawa Electric also round out the list. BOTZ YTD mountain Global X Robotics & Artificial Intelligence ETF's performance in 2023 C3.ai is the largest holding in the First Trust Nasdaq Artificial Intelligence and Robotics fund, according to Morningstar. But investors also get telecommunications company Ciena , optical equipment maker Topcon and defense technology company QinetiQ. The largest holdings in the ARK Autonomous Technology & Robotics ETF include Tesla , Deere , and software company Trimble , according to Morningstar, with smaller bets in names like Caterpillar , General Motors , Alphabet , Nvidia and Blade Air Mobility . To be sure, those companies have invested in AI capabilities, with Caterpillar recently highlighting its use in projecting demand and availability of spare parts. But that's a lot different than what investors might be looking for when trying to find ways to exploit the market effect of ChatGPT.