Artificial intelligence (AI) stocks have seen significant gains, with the Magnificent 7 returning more than 106 percent in 2023, significantly outperforming the Nasdaq 100 and S&P 500.

The AI ​​market is projected to reach US$305.90 billion in 2024, growing at a CAGR of 15.83 percent to reach US$738.80 billion by 2030, while the number of users of AI tools is expected to grow to 729 million by 2030. up from 254 million in 2023.

Nvidia, a leading chip designer, is an example of this growth, with its shares up 46 percent this year after tripling in 2023, positioning Nvidia as the fourth most valuable company globally.

With advisers looking to capitalize on the AI ​​trend on behalf of their clients, Manny Damianakis, head of sales at Global X ETFs Australia, believes ETFs provide easy access to AI, offering exposure to a diversified group of innovative companies.

"ETFs can offer exposure to those companies at the forefront of innovation that are often overlooked and harder to identify, beyond household names like the Magnificent 7. In addition, well-supported ETF providers are poised to innovate with new types of ETFs, pushing the boundaries of traditional investment opportunities,” said Damianakis.

"Given that the technology sector goes through periods of volatility, ETFs can provide a means of gaining exposure to a diversified group of companies, thereby reducing the risk associated with single-stock concentration." This approach means that investors no longer rely solely on the performance of individual stocks. Instead, they cover broader market themes by investing in a basket of stocks with varying degrees of exposure to AI.”

AI ETFs can be deployed in a portfolio under a core and satellite model, which involves splitting portfolios into two distinct components – a “core” and a “satellite” segment.

Core portfolio holdings should consist of highly compelling, long-term investments such as ETFs in key asset classes, according to Damianakis, while satellite exposures, such as AI-themed ETFs, allow for targeted investments in specific trends with higher concentration risk.

However, he stressed that some ETFs can be both core and satellite holdings, emphasizing the importance of choosing a provider with strong educational resources, research and customer service to support informed decision-making.

“The market's enthusiasm for AI and its transformative potential shows little sign of abating. We are very optimistic about the future of AI, not only as a trend that will persist for the next five to 10 years, but as a megatrend poised to transform industries and businesses far into the future,” said Damianakis.

Recent research by Global X has shown that AI-related ETFs, particularly in semiconductors, have “exploded” in 2024.

Robotics and artificial intelligence ETFs in particular more than doubled in popularity compared to last year, while investors allocated more than $53 million to semiconductor ETFs in the first three months of the year.

Cybersecurity ETFs have also seen higher levels of support, with domestic investors pouring about $30 million into cybersecurity ETFs so far in 2024, compared to just $270,000 in 2023.

Looking to capitalize on this trend, in April Global X announced it was launching the Global X Artificial Intelligence ETF (ASX: GXAI) on the ASX, offering Australian investors exposure to innovation and growth in AI-related companies.

GXAI, which will be the first dedicated AI ETF to launch in Australia, tracks the Indxx Artificial Intelligence & Big Data Index.

Speaking about the launch at the time, CEO Evan Metcalfe said the potential for AI-themed apps was significant, with forecasts suggesting the global market could grow to US$300 billion by 2026.

"Artificial intelligence is still evolving, and with that natural evolution comes the potential for new applications," Metcalf explained.

"GXAI offers investors a way to target the rapid advancements and opportunities of AI technologies across a range of industries and a diverse selection of companies."

Citing that Global X has already seen a combined $125 million in inflows so far this year into the Global X FANG+ ETF and the Global X Semiconductor ETF, which offer exposure to subsets of the AI ​​theme, Metcalf believes there is a big appetite for AI - related ETFs in the local market.

“AI is not a blip, it is a structural shift that will change industries and life as we know it.

“Australian investors can use GXAI to invest in leading companies along the value chain of this megatrend that are positioned to benefit from AI adoption and innovation. Therefore, GXAI is a suitable addition to our product range as our thematic investment ethos is focused on longer-term opportunities.”

Betashares has had its Global Robotics and Artificial Intelligence ETF, or RBTZ, listed on the ASX since 2018. At the time of the launch, the firm said RBTZ would provide access to companies involved in the production or use of robotics and artificial intelligence products and services.

Among RBTZ's portfolio is Nvidia with 10.7%, followed by ABB Group with 9.4%. RBTZ also owns names like C3, UiPath, as well as the integration of AI into industrial automation through robotics.

Speaking to InvestorDaily, Cameron Gleason, senior investment strategist at Betashares, highlighted that the firm offers multiple ways to access AI, including the RBTZ ETF and NDQ ETF, which provide exposure to the Nasdaq 100 and its leading mega-cap technology companies, pioneering advances in the AI ​​sector.

While aware of the increased interest AI companies are attracting, Gleason emphasized that when considering AI exposure for a portfolio, investors and advisors should review the companies in the fund and decide whether they prefer broad exposure or a more targeted approach. He also warned of the need to consider stock-specific risks associated with AI investments.

"The inherent disruptive nature of emerging sectors such as AI makes it much more difficult to pick companies that will maintain their leadership in the long term," the strategist said.

“For example, ASX-listed Appen was once an AI darling but is now down 98 per cent from its 2020 highs. And even though Nvidia continues to add power, it's a very volatile stock. As a result, our view is that investors should seek to avoid concentrated bets on specific AI names.”

In any case, he noted, even though AI and tech names are performing strongly, that doesn't mean investors should forget the importance of diversification and building a solid portfolio.

"This means investors should aim to build a solid core that contains diversified exposure to Australian and international shares, bonds and other assets."