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Artificial intelligence (AI) has created trillions of dollars in value for some of America's largest companies over the last few years, but not every player in this emerging industry has been a winner.
Lemonade stock is down 71% from its all-time high (as of Friday, Oct. 2).
SoundHound AI stock is down 75% from its all-time high.
C3.ai stock is down 93% from its all-time high.
Upstart Holdings stock is down 94% from its all-time high.
While most people agree AI is a transformative technology, picking winners and losers in this space isn't necessarily easy. Buying an exchange-traded fund (ETF) that owns an entire basket of AI stocks can eliminate the guesswork, so it's probably a smarter move for everyday investors.
Missed AI's "Act 1"? Act 2 Could Be 14x Bigger. Most investors think they missed the AI boat because they didn't buy Nvidia in 2005. But according to our analysts, we're only at the end of "Act 1"—the R&D phase. "Act 2" is the global rollout. Continue »
The Roundhill Generative AI and Technology ETF (NYSEMKT: CHAT) exclusively invests in companies that are developing the hardware, software, and platforms powering the AI revolution. Investors can buy a single share in the ETF for under $100, and here's why it might be a good idea for the long term.
Some ETFs hold hundreds or even thousands of individual stocks, but the Roundhill Generative AI and Technology ETF holds just 44. It has a highly concentrated portfolio because it invests solely in the AI industry, so investors shouldn't put all of their eggs in this basket alone. Instead, this fund would be a great addition to a diversified portfolio of other ETFs and individual stocks, particularly one that doesn't already have much exposure to the AI boom.
The Roundhill ETF is quite top-heavy, with its 10 largest positions alone representing 39.4% of the value of its entire portfolio. However, they are some of the world's highest-quality AI companies.
Data source: Roundhill Investments. Portfolio weightings are accurate as of Oct. 4, 2026, and are subject to change.
Suppliers of chips and components dominate the above list. Nvidia and AMD design some of the world's most powerful graphics processing units (GPUs) for data centers, which do most of the heavy lifting in AI workloads. SK Hynix and Micron, on the other hand, are top suppliers of high-bandwidth memory chips, which keep data flowing smoothly to GPUs in order to prevent bottlenecks that would otherwise slow down AI software applications.
ASML manufactures the lithography machines responsible for etching circuits onto silicon wafers for the most advanced semiconductors, and its customers include some of the world's largest chip fabricators including Taiwan Semiconductor Manufacturing and Intel. Then there is Astera Labs, a pivotal supplier of data center networking and connectivity hardware that rapidly transports information between chips and devices.
Alphabet, Microsoft, and Amazon are three of the biggest buyers of data center chips and components. They build AI infrastructure to develop their own models and software, but they also rent computing capacity via their respective cloud platforms to other businesses for a fee, which has become a very lucrative practice.
The Roundhill Generative AI and Technology ETF launched in May 2023, so it doesn't have a very long track record for investors to analyze. However, it has soared by 267% since then, crushing the S&P 500 and Nasdaq-100 indexes which have returned 83% and 122%, respectively, over the same period.
However, the AI industry is yet to hit a serious speed bump, so the Roundhill ETF hasn't been battle tested by a sustained downturn. Therefore, its past performance isn't necessarily a reliable indicator of its future results, which is all the more reason for investors to own it as part of a diversified portfolio. This strategy can still lead to strong returns, while keeping the potential risks in check.
Cost is another consideration. The Roundhill ETF has an expense ratio of 0.75%, meaning investors will pay an annual fee of $75 for every $10,000 they park in the fund. That doesn't sound like much, but it's 25-times higher than what investors will pay in a typical Vanguard index fund, which is just 0.03%. High fees can chip away at investors' returns over the long term, which is a good argument for using a small position size.
With all of that said, the Roundhill ETF can certainly be a great alternative to picking individual AI stocks. This technological revolution is likely to create opportunities in entirely new areas like robotics and autonomous vehicles in the near future, and investors who don't have the time or expertise to keep up might be glad they added this ETF to their portfolio.
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Alphabet, Amazon, Intel, Lemonade, Micron Technology, Microsoft, Nvidia, SoundHound AI, Taiwan Semiconductor Manufacturing, and Upstart. The Motley Fool recommends Astera Labs and C3.ai. The Motley Fool has a disclosure policy.
1 No-Brainer Artificial Intelligence (AI) ETF to Buy With $100 and Hold Forever was originally published by The Motley Fool
