THE S&P500(INDEXSNP: ^GSPC) exploded this year. It is up 28% with just one month to go until 2024, which is more than double its average annual return since the index’s inception in 1957.
The S&P 500 is weighted by market capitalization, so the largest companies in the index have a greater influence on its performance than the smaller ones. Therefore, his good year is not a surprise considering that the actions of Nvidia(NASDAQ:NVDA) — now a $3.3 trillion powerhouse — soared 187% in 2024.
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But Nvidia isn’t the only trillion-dollar company generating big returns this year. Metaplatforms And Amazon recorded gains of 65% and 38%, respectively. Investors without exposure to these artificial intelligence (AI) giants in their portfolios have likely significantly underperformed the S&P 500 in 2024.
Purchasing an exchange-traded fund (ETF) can be an easy way to get this exposure. THE Roundhill Generative AI and Technology ETF(NYSEMKT: CHATTER) holds many of the most popular AI stocks, and investors can buy into them for as little as $40.
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According to research from Goldman Sachs, AI is expected to contribute approximately $7 trillion to the global economy by 2032. The Roundhill ETF invests in companies that build the platforms, infrastructure, and software that bring this technology to life.
The ETF only holds 48 stocks and its top five holdings represent 26.4% of its portfolio value, so it is very concentrated. But these five stocks are among the leaders in the AI race.
Action
Roundhill ETF Portfolio Weighting
1.Nvidia
7.28%
2. Microsoft
5.85%
3. Alphabetical class A
5.53%
4. Metaplatforms
4.41%
5. Semiconductor manufacturing in Taiwan
3.39%
Data source: Roundhill Investments. Portfolio weightings as of December 1, 2024.
Nvidia provides the most advanced graphics processing units (GPUs) for the data center market: chips needed to develop and power AI models. Demand for these GPUs far outstrips supply, and the company’s data center revenue has grown by triple-digit percentages in each of the last six quarters. Nvidia’s new Blackwell GPUs offer a major step forward in performance over the previous generation of chips. expected to sustain its sales for the foreseeable future.
Microsoft and Alphabet are the leaders on the software side of the AI race. Microsoft developed its Copilot virtual assistant with help from OpenAI, while Alphabet built its own family of models called Gemini. Additionally, both tech giants offer a growing portfolio of AI services through their respective cloud computing platforms, which enable businesses around the world to deploy this technology.
Meta, meanwhile, built Llama, the industry’s most popular family of open source large language models (LLMs). It uses these models to create exciting new AI features for Facebook and Instagram.
Other popular AI stocks held by Roundhill ETF include Palantir Technologies, Advanced microdevices, Oracleand Amazon.
The Roundhill ETF was created in May 2023, so it doesn’t have much history for investors to analyze. However, its 57% return since then is better than the 47% total return recorded by the S&P 500 over the same period. The ETF is also beating the S&P this year, gaining nearly 29% so far.
The ETF has an expense ratio of 0.75%, which is the proportion of the fund deducted each year to cover management costs. That’s relatively high compared to ETFs managed by Vanguard, for example, which mostly have expense ratios of 0.1% or less. Higher costs are typical of specialty funds like this, but they can eat into investors’ returns over the long term.
Of course, the future performance of this fund will depend entirely on the success of AI. If the growth of the technology lives up to Goldman Sachs’ estimates, then this will be a huge market for the ETF companies to expand into. If it doesn’t meet expectations, stocks like Nvidia could lose significant value.
That said, Morgan Stanley estimates that four companies – Microsoft, Alphabet, Amazon and Meta – will spend a total of $300 billion on AI infrastructure in 2025. This is a clear sign of their expectations for AI success. Spending will include chips, so this will be a huge advantage for vendors like Nvidia and AMD.
Therefore, the stage is set for the Roundhill ETF to perform well over the next year at least. But given its high concentration, investors should only buy the ETF as part of a balanced portfolio that includes other funds and individual stocks that already have little or no exposure to the AI revolution.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Anthony DiPizio has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Advanced Micro Devices, Alphabet, Amazon, Goldman Sachs Group, Meta Platforms, Microsoft, Nvidia, Oracle, Palantir Technologies and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Mad Motley has a disclosure policy.
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