Exploring the Risks and Rewards of Investing in AI Stocks with the iShares Future AI and Technology ETF

Investors can earn higher returns in the stock market, but volatility is a price they pay. Artificial intelligence (AI) stocks have delivered spectacular returns, but it's not always smooth sailing. The iShares Future AI and Technology ETF holds 48 different AI stocks and might be a great option for investors seeking exposure to the sector. Volatility is higher in hyper-growth areas like AI, with stocks like Palantir Technologies surging 480% in the past 12 months but plummeting 40% between February and April. Buying an ETF like iShares Future AI and Technology can smooth out extreme volatility and offer exposure to AI leaders like Nvidia, Alphabet, and Microsoft.

Investors seeking higher returns in the stock market must be prepared to stomach regular volatility, as the opportunity for greater returns often comes with increased risk. Artificial intelligence (AI) stocks have delivered spectacular returns in recent years, but the ride has not been smooth. The iShares Future AI and Technology ETF (ARTY) offers a diversified approach to investing in the AI sector, potentially smoothing out the volatility associated with individual AI stocks.

The iShares Future AI and Technology ETF, established in 2018 with a focus on robotics and AI, was recently reconstructed to focus solely on AI. It holds 48 different AI stocks, including industry leaders such as Palantir Technologies (PLTR), Nvidia (NVDA), and Alphabet (GOOGL). Since its reconstruction, the ETF has delivered a return of 40%, outperforming the S&P 500's 19.5% return over the same period [1].

However, investing in AI stocks comes with significant risks. Palantir Technologies, for instance, surged by 480% in the past 12 months but experienced a 40% plunge between February and April 2023. This volatility underscores the challenges of investing in hyper-growth areas like AI. Buying an ETF like iShares Future AI and Technology can help mitigate this risk by providing exposure to a basket of AI stocks, reducing the impact of underperformance by any single stock.

Meta Platforms (META), the technology giant behind Facebook, Instagram, and WhatsApp, is also investing heavily in AI. The company is in talks with AI video generation startups Pika and Higgsfield, reflecting its broader initiative to enhance content generation capabilities across its social media applications, smart glasses, and virtual reality (VR) services. Meta's recent acquisitions, including a 49% stake in Scale AI and a small AI voice generation startup, PlayAI, demonstrate its commitment to integrating AI into its products [2].

Despite the risks, investing in AI stocks can be highly rewarding. The iShares Future AI and Technology ETF, with its diversified portfolio and focus on AI, offers a compelling option for investors seeking exposure to this revolutionary sector. However, it's essential to consider the ETF's expense ratio of 0.47%, which is higher than traditional index funds. Nevertheless, the ETF's strong performance and the potential for continued growth in the AI sector make it a valuable addition to a diversified portfolio.

References:
[1] https://finance.yahoo.com/news/investing-artificial-intelligence-ai-stocks-081100827.html
[2] https://www.ainvest.com/news/meta-platforms-eyes-ai-video-startups-boosts-ai-investments-2508/