To The Moon

$NVIDIA Corp(NVDA)$ 

Artificial intelligence (AI) was the dominant theme in the stock market last year, and a growing number of businesses are using the technology.

According to Goldman Sachs, 36% of companies in the S&P 500 index mentioned AI in their conference calls with investors during the fourth quarter of 2023, which was up from 31% just three months prior. Investors' interest is beyond piqued, but it will be increasingly difficult to pick winners and losers in the AI race amid the expanding playing field.

Shares of Nvidia, for example, have soared more than 40% in 2024 already, after jumping nearly 240% in 2023. Shares of Upstart Holdings, on the other hand, have plunged 32% so far this year after a 210% jump last year. AI is central to both companies, but their businesses are very different, and AI alone isn't always enough to buoy investors' enthusiasm.

But investors don't need a crystal ball to profit from the AI revolution. Here's how they can own a portfolio of AI stocks while limiting exposure to the inevitable failures.

Exchange-traded funds can offer the perfect balance of risk and reward

Rather than purchasing several individual AI stocks (which involves picking winners and losers) investors can buy an exchange-traded fund (ETF) focused on AI. An ETF can hold hundreds of individual stocks, and it's managed by professionals who make adjustments to the portfolio as necessary.

Therefore, investors can benefit from the upside offered by the AI industry while protecting themselves from companies that might fail -- and if past technology booms have taught us anything, there will be many failures.

1. iShares Robotics and Artificial Intelligence Multisector ETF (IRBO)

The goal of the IRBO ETF is to give investors exposure to companies at the forefront of the AI and robotics industries. It holds 111 stocks and securities from all over the world, so it's one of the most diversified options available.

IRBO is also quite evenly distributed compared to other AI ETFs, because its top 10 holdings account for just 13% of the total value of its portfolio.

Semiconductor design company Arm Holdings is IRBO's top position. Its stock has soared 60% in 2024 already, which is why it has amassed the largest weighting in the ETF by a wide margin. IRBO also owns the two main semiconductor heavyweights in the AI space: Nvidia and Advanced Micro Devices.

2. Global X Robotics & Artificial Intelligence ETF (BOTZ)

While the BOTZ ETF is similar to IRBO in name and objective, its makeup is very different. It holds just 42 stocks and securities, so it's far more concentrated.

In fact, its top 10 holdings account for a whopping 70.6% of the total value of its portfolio. Its top holding -- Nvidia -- makes up almost 20%.

More than half of the stocks in the BOTZ top 10 are listed outside the U.S. For example, ABB Ltd is a Swiss engineering giant that develops hardware and software solutions for electrification and automation. Similarly, Japanese companies Keyence Corporation and Fanuc Corp develop products and equipment required to automate factories and manufacturing processes.

BOTZ also holds U.S.-based powerhouses like Intuitive Surgical, which makes robotics products to improve clinical outcomes in the healthcare industry. Then there is UiPath, which develops automation software -- this stock has become a favorite for tech investor Cathie Wood.