Why the Roundhill Generative AI ETF Outperforms Leveraged and Broad AI ETFs in 2025

The artificial intelligence (AI) sector has emerged as one of the most dynamic investment themes of 2025, with ETFs offering varying strategies to capitalize on its growth. Among these, the Roundhill Generative AI & Technology ETF (CHAT) has distinguished itself as a top performer, outpacing both leveraged single-stock AI bets and broader AI ETFs. This article examines the factors driving CHAT's success, including its strategic exposure to the Magnificent Seven, active management approach, and balanced diversification.

CHAT's Impressive Performance in 2025

As of November 14, 2025, CHAT has delivered a staggering 64.4% return over the past year, making it one of the most successful AI-focused ETFs. This outperformance is attributed to its concentrated portfolio of 42 stocks, which includes major players like NVIDIA, Microsoft, and Meta. By focusing on companies directly involved in generative AI-evaluated through metrics such as revenue, profit, and R&D investment-CHAT captures the sector's most innovative and capital-efficient firms.

In comparison, leveraged AI ETFs like the ROBO Global Artificial Intelligence ETF (THNQ) and the VanEck Semiconductor ETF (SMH) have returned 43.1% and 42.5% year to date, respectively, while broader AI ETFs such as the Global X Artificial Intelligence & Technology ETF (AIQ) lag further behind with 30.9% gains. CHAT's edge lies in its active management and targeted focus on generative AI, which aligns with the sector's fastest-growing subthemes.

Magnificent Seven Exposure: A Key Catalyst

CHAT's outperformance is further bolstered by its strategic exposure to six of the "Magnificent Seven" tech giants-Alphabet, Amazon, Apple, Meta, Microsoft, and NVIDIA. These companies dominate the AI value chain, from cloud infrastructure to chip manufacturing, and their combined capital expenditures are projected to reach $318 billion in 2025. Specifically, CHAT's portfolio includes 7.48% in Alphabet, 5.91% in NVIDIA, and 4.82% in Microsoft ensuring alignment with the sector's most influential players.

This exposure contrasts with the Roundhill Magnificent Seven ETF (MAGS), which allocates equal weight to all seven companies but lacks CHAT's focus on AI-specific innovation. By prioritizing AI-driven revenue and R&D, CHAT captures the upside of the Magnificent Seven while avoiding less relevant holdings, a strategy that has proven critical in a sector where AI leadership is rapidly evolving.

Diversification vs. Leverage: CHAT's Balanced Approach

While leveraged AI ETFs, such as the 3x Long Artificial Intelligence ETP, have delivered eye-popping returns-exceeding 120% YTD as of August 2025, they come with amplified volatility and risk. These products often concentrate in a narrow set of holdings, such as NVIDIA, and are highly sensitive to market corrections. For instance, a 2x leveraged NVIDIA ETF would magnify both gains and losses tied to the chipmaker's stock, exposing investors to significant downside if the AI hype cycle slows.

CHAT, by contrast, offers a more balanced approach. Its 0.75% expense ratio is competitive with broader AI ETFs, while its active management ensures a diversified portfolio that mitigates single-stock risk. For example, while leveraged ETFs may overexpose to NVIDIA, CHAT's 5.91% allocation to the chipmaker is complemented by holdings in Microsoft, Meta, and other AI infrastructure providers. This diversification reduces the impact of sector-specific volatility, making CHAT a more sustainable choice for long-term investors.

The Case for CHAT Over Broader AI ETFs

Broader AI ETFs like AIQ and the iShares AI Innovation and Tech Active ETF (BAI) provide exposure to a wider range of companies, including smaller, speculative firms. While this diversification reduces risk, it also dilutes returns by including less impactful holdings. CHAT's active management model, which prioritizes generative AI leaders, avoids this pitfall. By focusing on companies with proven AI revenue and R&D pipelines, CHAT captures the sector's most transformative innovations without sacrificing diversification.

Moreover, CHAT's portfolio of 42 stocks strikes a balance between concentration and breadth. It avoids the over-concentration of leveraged single-stock ETFs while maintaining a focused approach that excludes underperforming or tangential AI players. This strategy has enabled CHAT to outperform both leveraged and broader AI ETFs, as evidenced by its 52% YTD return-second only to a 2x leveraged ETF in the AI space.

Conclusion

The Roundhill Generative AI & Technology ETF (CHAT) has emerged as a standout performer in 2025 by combining active management, strategic Magnificent Seven exposure, and balanced diversification. Its focus on generative AI leaders, including NVIDIA and Microsoft, aligns with the sector's most promising growth trajectories. While leveraged ETFs offer higher returns at the cost of volatility and broader ETFs dilute gains with less impactful holdings, CHAT provides a middle ground that maximizes upside while managing risk. For investors seeking to capitalize on AI-driven growth without overexposure to single stocks or speculative bets, CHAT represents a compelling option.