As investor interest in
artificial intelligence (AI) continues to surge, it comes as no surprise that the
Global X Robotics & Artificial Intelligence ETF (
NASDAQ:BOTZ)
just hit a 52-week high. AI is clearly an exciting sector with enormous long-term potential. However, there are several reasons for caution that investors may want to consider before jumping into BOTZ near its 52-week high.
Concentration Risk
One thing investors should be aware of is that BOTZ is not particularly diversified. BOTZ holds just 45 positions -- this isn’t a bad thing per se, as BOTZ is a thematic ETF focused specifically on artificial intelligence, so its fund managers want to key in on what it believes are the best opportunities within AI.
However, this ETF's top 10 holdings make up 65.7% of the fund, so this is a fairly top-heavy portfolio. Furthermore, it's even more concentrated when it comes to its top positions -- robotic surgery device maker Intuitive Surgical (
NASDAQ:ISRG
) has a 10% weighting, and semiconductor giant Nvidia (
NASDAQ:NVDA
) has a 9.3% weighting. Below, you can check out an overview of
BOTZ's top 10 holdings using TipRanks' holdings screen.
To be fair, these are great, innovative companies (with great
Smart Scores to boot), but this leaves BOTZ investors with a lot of exposure to these two names, both to the upside and downside. Also, the market seems to be pricing both Nvidia and ISRG for perfection right now based on their current valuations, meaning that their share price could take a haircut based on any earnings disappointment or other misfire.
Nvidia currently trades at 62.5 times forward earnings, and even going all the way out to January 2025, it trades at 46.3 times consensus 2025 earnings estimates. Meanwhile, Intuitive Surgical isn’t much of a bargain either -- the maker of robotic surgery equipment trades for 55.8 times earnings and 47.4 times next year’s earnings.
BOTZ's Steep Valuation
This brings us to the second concern when it comes to BOTZ, which is the ETF’s overall valuation. As you might guess, with its top two holdings trading at such lofty valuations, BOTZ itself has a fairly steep valuation, with a weighted average price-to-earnings ratio of about 34.2. This is significantly more expensive than the S&P 500’s (
SPX
) P/E multiple of 23.9.
Of course, AI is cutting-edge technology that has the potential to reshape the economy as we know it, so you can certainly make the argument that the broad universe of AI stocks deserves a premium valuation to the overall market.
However, there are plenty of stocks that are heavily involved in AI that trade at a discount to the broader market or at least on par with it. Look no further than mega-cap tech leaders like Meta Platforms (
NASDAQ:META
) and Alphabet (
NASDAQ:GOOG
) (
NASDAQ:GOOGL
), which are both heavily involved in AI and trade at 20.4 times and 22.2 times earnings, respectively.
Taiwan Semiconductor (
NYSE:TSM
), which fabricates the semiconductors that Nvidia and many other chipmakers use for AI applications, trades at just 16.2 times earnings. As you can see, it’s possible to invest in compelling AI plays without paying a huge premium to the broader market.
What’s Missing?
The mention of Meta Platforms, Alphabet, and Taiwan Semiconductor brings up another point that investors should be aware of about BOTZ. None of these leading AI names are held by this fund. I give BOTZ credit for going beyond the usual suspects when it comes to AI, delving deep into international markets to find plenty of under-the-radar names that most generalist investors won’t be familiar with, and there are likely some hidden gems in this mix.
However, it also seems like some key names are missing from the fund, in addition to the three stocks mentioned above. For example, Microsoft (
NASDAQ:MSFT
) is a key investor in privately-held OpenAI, which is perhaps the most prominent name in the space, and Microsoft is surprisingly absent from BOTZ’s holdings.
Another name that is conspicuous in its absence is semiconductor giant Advanced Micro Devices (
NASDAQ:AMD
). Morgan Stanley (
NYSE:MS
) analyst Joseph Moore recently said that AMD's opportunity within the AI market may be much larger than initially anticipated.
Relatively High Expense Ratio
Lastly, one final thing to be aware of is that BOTZ has a relatively high expense ratio of 0.69%. This means that an investor putting $10,000 into the ETF would pay $69 in expenses in a year. These fees can add up over time -- over the course of a 10-year investment, assuming a 5% return each year and no change to the fund's operating expenses, this same investor would pay $859 in fees, according to the ETF's prospectus.
BOTZ is a thematic ETF with a very specific focus and quite a few international holdings so I’m not expecting this type of an ETF to have an 0.1% expense ratio like some of the low-cost, broad-market SPDR or Vanguard ETFs.
But even compared to the rest of the universe of popular AI-focused ETFs, its expense ratio is in the middle of the pack. For example, the
iShares Robotic and Artificial Intelligence ETF (
NYSEARA:IRBO)
has a lower expense ratio of 0.47%, while the
WisdomTree Artificial Intelligence and Innovation Fund (
BATS:WTAI)
has a 0.45% expense ratio. Still, to its credit, BOTZ is cheaper than other high-profile AI-themed ETFs like the
ROBO Global Robotics & Automation ETF (
NYSEARCA:ROBO)
and ARK Invest’s
ARK Autonomous Technology & Robotics ETF (
BATS:ARKQ)
, which have expense ratios of 0.95% and 0.75%, respectively.
Below,
you can view a comparison of the fees and other key metrics for these five ETFs, such as price, one-year performance, assets under management (AUM), and their Smart Scores using TipRank’s ETF Comparison Tool. Readers can also customize these fields to compare ETFs based on other key data points of their choosing.
Looking Ahead
In closing, none of this is to say that
BOTZ stock is bad -- it has a carefully selected portfolio of AI holdings, and it recently surged to a 52-week high after gaining 22.8% year-to-date. However, investors who are excited about AI and want to gain more exposure to it should be aware of the fund's expense ratio, the relatively steep valuation of its portfolio, and its high degree of concentration in its top holdings.
Additionally, investors looking for an AI ETF and expecting to find familiar names like Microsoft, Alphabet, Meta Platforms, Advanced Micro Devices, and others should be aware that BOTZ does not have positions in these stocks.
Disclosure
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There's no denying that artificial intelligence (AI) is sweeping the tech industry right now as companies shift their attention toward this fast-growing market. And on the latest quarterly earnings calls, a handful of tech companies showed just how much attention they are giving
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The Vanguard Information Technology ETF (VGT) was launched on 01/26/2004, and is a passively managed exchange traded fund designed to offer broad exposure to the Technology - Broad segment of the equity market.
Artificial intelligence could be the most significant technological leap forward since the internet more than 20 years ago. But for many, it's still an ambiguous term lacking real-world specifics.
In 2023, investors have been hit with a barrage of news regarding recent advancements in artificial intelligence (AI) and potential breakthroughs on the horizon. The launch of ChatGPT provided evidence that next-level generative AI could be a game-changer and was the spark that i
Advances in
artificial intelligence (AI) have captured the attention of both investors and the broader public this year. While investors are excited about the possibilities that AI can unlock, we’re still in the early innings of the AI revolution, and the long-term winners in this field are yet to be determined.
That’s why it makes a lot of sense to approach investing in the space by using a well-diversified ETF like the
iShares Robotics and Artificial Intelligence ETF (
NYSEARCA:IRBO)
. IRBO invests across a wide swath of stocks that have different types of involvement in AI today, giving investors plenty of shots on goal when it comes to capitalizing on the long-term growth of AI.
Broad Diversification
This $304 million ETF from BlackRock’s (
NYSE:BLK
) iShares “seeks to track the investment results of an index composed of developed and emerging market companies that could benefit from the long-term growth and innovation in robotics technologies and artificial intelligence,” according to iShares.
IRBO offers broad diversification in this pursuit. Not only does it hold 118 different positions, but its top 10 positions make up just 13.4% of the fund, so this isn’t an ETF that is dominated by just a handful of positions. Top holding Meta Platforms (
NASDAQ:META
) comes in at a small 1.6% weighting. This stands in contrast to other popular AI ETFs like the
Global X Robotics and Artificial Intelligence ETF (
NASDAQ:BOTZ)
, where the top holding Intuitive Surgical (
NASDAQ:ISRG
) has a nearly 10% weighting, or the
ARK Autonomous Technology & Robotics ETF (
BATS:ARKQ)
, where Tesla (
NASDAQ:TSLA
) makes up 13% of the fund. These aren’t bad ETFs, and they have performed strongly year-to-date, but IRBO’s differentiated and more diversified approach is appealing.
Below, you’ll find an overview of
IRBO’s top holdings using TipRanks’ holdings tool.
This strong diversification allows IRBO to invest across many different types of companies that are involved in different aspects of AI. For example, Meta Platforms isn’t getting quite the same level of buzz as its fellow FAANG stocks like Microsoft (
NASDAQ:MSFT
) and Alphabet (
NASDAQ:GOOGL
) when it comes to AI, but the company is working on plenty of exciting AI advances of its own. On May 11, Meta unveiled its "AI Sandbox," where advertisers can test out a suite of generative AI tools to create ads. Meta previously released tools like "Make-A-Scene" and "Make-A-Video," generative AI tools that can create images from audio and video from text. Additionally, its ImageBind AI learning model is capable of learning from text, audio, visual, and more in a manner that is getting closer to how humans learn.
IRBO’s top holdings also include semiconductor names like Nvidia (
NASDAQ:NVDA
) and Taiwan-based Alchip Technologies, which are crucial to powering AI applications.
Additionally, one surprising thing about IRBO is that while it isn't an international or emerging markets ETF, it's relatively diversified geographically -- just 52.5% of its holdings (as of March 31) are from the United States. China, Japan, and Taiwan all account for double-digit weightings.
Beyond the Usual Suspects
Beyond the usual suspects of mega-cap tech names and
semiconductor stocks, you’ll also find enterprise and consumer-facing software names that utilize AI in a variety of ways.
For example, top 10 holding Hubspot (
NYSE:HUBS
) is mostly thought of as a CRM platform, but it's adding to this platform with new AI-enhanced tools like Content Assistant, which “utilizes Open AI’s Chat GPT model” to help companies to create content by generating blog ideas, blog outlines, prospecting and marketing emails, and more.
This is a good example of a company using AI to complement its existing offerings, as this type of content can create leads, and managing leads and customers is HubSpot’s bread and butter.
Meanwhile, ChatSpot is a chatbot that sales reps using HubSpot can ask to enter client and lead data, send follow-up emails, and generate reports. HubSpot currently has waitlists for both products.
The second-largest holding, Spotify (
NYSE:SPOT
), likely isn’t a name that immediately comes to mind, but its new AI DJ uses AI to make even more personalized playlists and recommendations for users based on their tastes and listening habits.
Stay Smart
As you can see from the table above, while not every IRBO holding has a
Smart Score, its overall collection of Smart Scores is strong. The Smart Score is TipRanks’ proprietary quantitative stock scoring system that evaluates stocks on eight different market factors. The result is data-driven and does not require any human intervention. A Smart Score of 8 or above is the equivalent of an Outperform rating. Six of the eight holdings that have a Smart Score rank at an 8 or better. Hubspot, Nivida, and Spotify all have 'Perfect 10' ratings.
A Modest Valuation
Not only does IRBO offer investors access to over 100 AI-associated stocks, but it also does so at a reasonable valuation. The ETF has a moderate price-to-earnings ratio of 20.4. While this isn’t dirt cheap, it’s slightly cheaper than the average multiple for the S&P 500 (
SPX
), which currently has a P/E ratio of 23.9, meaning that investors are gaining exposure to many of the world’s most important and most innovative AI players at a discount to the broader market, and it’s hard to argue with that.
Investor Takeaway
IRBO is great for investors that are looking for diversified exposure to AI. It also provides this diversification for a reasonable price. Additionally, its expense ratio of 0.47% isn’t the lowest you’ll see, but it's actually
cheaper than the expense ratio of other major AI ETFs like BOTZ and ARKQ, which charge 0.69% and 0.75%, respectively, as you can see below.
Overall, this is a well-diversified, reasonably-priced ETF that gives investors broad exposure to the rise of AI, making it a solid choice for long-term investors to consider.
With an annualized total return of 13.3% over the past three years, IRBO has made money for its investors, but it should be acknowledged that it has slightly lagged broad-market ETFs like the
SPDR S&P 500 ETF Trust (
NYSEARCA:SPY)
and the tech-focused
Technology Select Sector SPDR Fund (
NYSEARCA:XLK)
, which have returned 14.4% and 19.2%, respectively, over the same timeframe. That being said, it could begin to outperform the broader market as interest in AI continues to pick up.
Disclosure
There is a lot of hype around the potential of AI these days. Fueled by the rise of ChatGPT and the subsequent race for AI supremacy, all the Big Tech gang are looking to get a piece of the action.
There’s no danger of the opportunity being overhyped, according to Rosenblatt analyst Hans Mosesmann. In fact, the 5-star analyst knows exactly which company is best positioned to benefit the most from this huge development.
“We see
Nvidia (
NASDAQ:NVDA)
driving the biggest technology inflection the world may have ever seen in transformational AI everywhere and in everything,” Mosesmann said. “CEO Jensen Huang’s AI vision is openly playing out coincident with what appears to be Intel’s structural secular decline, signaling a changing of the guard in silicon valley for generational semiconductor global leadership.”
Mosesmann’s comments come ahead of the chip giant’s first quarter of fiscal 2024 report (April quarter), which the company will deliver on May 24. Mosesmann expects the company will meet or deliver slightly better results than those anticipated by the Street - consensus has revenue hitting $6.5 billion, and so does the company +/- 2%. The Street is calling for non-GAAP GMs (gross margins) of 66.5%, above Nvidia’s guide for ~65.3% +/- 50 bps.
The analyst highlights the data center Hopper H100 ramp, “solid Gaming trends (Ada Lovelace), and stable networking” as reasons behind the optimistic forecast.
Looking ahead to the July quarter, Mosesmann expects Nvidia’s top-line guide to come in at ~$7.10 billion, just ahead of the Street at $7.09 billion. That said, at the other end of the spectrum, Mosesmann is looking for non-GAAP EPS of $1.04 – a little below the $1.06 consensus estimate.
All told, there’s no change to Mosesmann’s Buy rating or $320 price target. There’s potential upside of 13.5% from current levels. (To watch Mosesmann’s track record,
click here)
Turning now to the rest of the Street, where, in total, 38 analysts have thrown the hat in with NVDA reviews over the past 3 months. These break down into 30 Buys, 7 Holds and 1 Sell, all coalescing to a Strong Buy consensus rating. However, considering the shares have soared by 93% year-to-date, the $288.24 average target implies a modest 2% upside. (See
Nvidia stock forecast
)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’
Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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Despite what they might say, every investor dreams of getting in on the ground floor of the next disruptive technology and riding the wave to untold riches. There's little question that the siren song of 2023 comes as the result of rapid advances in the field of generative artifi
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