The artificial intelligence (AI) sector is experiencing an investment boom, particularly in AI-themed ETFs, driven by the strong market performance of companies such as Nvidia Corp (NASDAQ:NVDA).
What Happened: The total value of AI-themed ETFs traded in the U.S. has risen to $6.88 billion as of February end, a significant increase from $2.55 billion a year ago, according to Morningstar data, Reuters reported on Tuesday. These funds encompass everything from top AI performers to more specialized themes such as robotics and sound generation.
Will Rhind, CEO of GraniteShares, noted that investors are still exploring the potential of this emerging category.
“It’s still so early in the evolution of this category … that investors are still sorting through the possibilities,”
The current enthusiasm for AI funds is reminiscent of previous investor interest in transformative technologies like dot-com stocks and electric vehicles.
Despite the historical trend of stock price declines following market booms, investors are currently showing strong interest in AI. Nvidia, known for its high-quality AI chips, remains a major focus.
The GraniteShares 2x Long NVDA Daily ETF (NASDAQ:NVDL) which aims to deliver twice the daily return of Nvidia’s shares, saw its assets double to $2 billion earlier this month, following an approximately 80% increase in Nvidia’s shares this year. This came after the company’s shares tripled in 2023.
Smaller ETFs have also experienced growth, with assets in the Themes Generative Artificial Intelligence ETF (NASDAQ:WISE) tripling to about $20 million from $7.5 million earlier this month.
Seven of the 18 diversified AI-related ETFs tracked by Morningstar have launched within the last three years. These funds have collectively seen inflows of $2.68 billion in the last 12 months, nearly double the inflows into global real estate ETFs.
Why It Matters: Nvidia’s recent unveiling of the Blackwell B200, despite causing a slight dip in its stock, led to a surge in the stocks of companies mentioned during the presentation. This includes engineering software companies like Synopsys Inc (SNPS), Cadence Design Systems Inc (CDNS), and ANSYS Inc (ANSS), which are set to use the new Blackwell-based processors for AI enhancements in their products.
KeyBanc Capital Markets analyst John Vinh praised the new announcements, while Future Fund Managing Partner Gary Black described it as a "classic sell the news" scenario.
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