Key takeaways: 

• Artificial intelligence (AI) is expected to continue playing a transformative role in the way we do business, which means a growing focus will sit on the hardware, software and services, and robotics and automation solutions tied to the technology. 

• There are a growing number of AI-related ETFs allowing investors to gain diversified exposure to this investing theme. 

• It is important to do your own research before making decisions to invest. 

• Past performance is not an indicator of future performance. 

Rising interest in AI has been one of, if not the central catalyst, that lifted the US stock market to a series of all-time highs in 2024.  

AI-related stocks significantly outperformed other segments of the market, with investors optimistic that this theme could herald long-term transformative growth over the coming years. 

Already, some companies have made a clear case for the significance of the technology, supporting unprecedented demand for components like semiconductors.  

Meanwhile, cloud computing is increasingly becoming commonplace, and the sheer level of resources going towards the development of large language models (LLMs) suggests generative AI has a role to play in unlocking potential efficiency and profitability across an assortment of industries, while also reshaping our day-to-day lives. 

Considering the growth in this segment, investors can choose to gain exposure to AI through individual companies across the different subsets that make up this space, or ETFs that focus on the broader investment theme or AI-specific sub-segments. 

AI Component and Infrastructure Suppliers 

The foundations for AI rest in the hardware that supports this technology. Perhaps the most prominent example of this, and in many respects, the flagbearer for the AI movement over the last couple years has been semiconductors. Graphics Processing Units (GPUs), or AI-optimised chips, provide the computational power underpinning machine learning and generative AI.  

As such, semiconductor manufacturers are an indirect yet highly leveraged segment to AI. Some of the major players in this space include Nvidia (NASDAQ: NVDA), Advanced Micro Devices (NASDAQ: AMD), and Taiwan Semiconductor Manufacturing (NYSE: TSM), among others. 

However, semiconductors are not the only supporting hardware for AI. Another area playing a major role supporting the technology is data centres. 

On this front, unprecedented growth across AI and existing data centre capacity being stretched requires an increasing number and size of infrastructure assets to support development. 

For exposure to this AI-related theme, investors can choose to look at real estate investment trusts that focus on data centres. Examples include the likes of Digital Realty Trust (NYSE: DLR) and Vertiv Holdings (NYSE: VRT). 

Cloud Services, Software, and Lab Researchers 

If Nvidia is the most known hardware name supporting AI, the race within the software and services space could be viewed as far more competitive. 

Various companies operate across the AI continuum, focusing on cloud-related business applications, search algorithms, chat tools and large language models, predictive analytics, voice recognition, machine learning, and even autonomous driving. This includes mega-tech household names like Microsoft (NASDAQ: MSFT), Alphabet (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), and Meta Platforms (NASDAQ: META). 

To understand why the cloud holds a key role supporting generative AI, it is worth noting that most AI workloads function via the cloud. With more applications coming into view, the cloud, a barometer for overall expansion across the AI category, is only likely to require increasing capacity over time. 

Meanwhile, the rise in popularity of products like ChatGPT and Bard show how pivotal large language models are. These complex algorithms are continually being trained to improve the scope of their knowledge, offering significant growth potential. And of course, some software companies are embedding AI into their operations to harness efficiency and improve decision making. 

In this rapidly changing landscape, new generative AI models are the focal point among researchers and developers that want to create sophisticated ways to extract further efficiencies and open new opportunities for businesses. 

Robotics and Automation 

While the field of robotics and automation does not depend on AI, the rapid growth of AI has created new possibilities within this space.  

Whether it be applications like healthcare, manufacturing, business, military, aerospace, and agriculture, AI now supports improved outcomes in each of these industries.  

The reasons why AI offers so much potential in the field of robotics and automation are twofold. 

Firstly, AI is improving precision and accuracy during the automation of repetitive tasks, while also optimising supply chains and improving quality control. Secondly, AI opens new channels to move beyond simple, repetitive and programmable tasks to instead complete complex activities — those that may have previously depended on some level of human intervention. 

Artificial Intelligence ETFs 

Choosing individual stocks from specific segments involves a degree of risk, especially with respect to portfolio exposure.  

However, a growing number of ETFs today provide broad AI exposure, thereby offering the benefit of diversification and reducing portfolio risk. Furthermore, there are several routes to pursue in this category. 

AI thematic ETFs like the Global X Artificial Intelligence ETF (ASX: GXAI) provide exposure to companies that generate revenue from AI services or products sold to end users.  

Alternatively, some ETFs narrow down to sub-industries, like robotics, cybersecurity, or cloud computing. An example includes the Global X Robo Global Robotics & Automation ETF (ASX: ROBO), More broadly, the benchmark indices in the US like the S&P 500 and the Nasdaq 100 offer notable AI exposure on account of the representation contributed by mega-tech companies. 

Investing in AI 

With AI expected to continue playing a transformational role across the world over the coming years, some would say a revolution is unfolding.  

This means that investors can tap into various growth opportunities, ranging from companies directly involved in providing the hardware to support the technology, software and services operators building out models or sophisticated solutions from the technology, or those harnessing AI to optimise robotics and automation solutions.  

However, investors don’t need to put all their eggs in one basket, with an ever-growing number of AI ETFs today offering exposure to this popular investing theme and offering diversification. 

Please undertake your own research and note that past performance is not an indicator of future performance.