The AI market is projected to reach US$305.90 billion in 2024, with a market volume of US$738.80 billion by 2030, according to Global X.
While AI has been a familiar theme for investors, its potential is now expanding across multiple sectors, driving innovative applications in industries such as agriculture and healthcare.
Locally, Global X’s AI exchange-traded fund (ETF), GXAI, has seen upwards of $40 million in inflows since its inception in April, signalling continued investor demand for exposure to the broad range of beneficiaries set to benefit from the AI boom, notes investment strategist Marc Jocum.
According to him, this thematic is here to stay, particularly as AI enters the commercialisation phase.
“It’s been in the making for more than 70 years and it’s creating really substantial investment opportunities across the entire AI ecosystem,” Jocum told InvestorDaily.
“What a lot of index providers and ETF issuers are looking at is … how can we be more broad? How can it be looking at other channels, other value chains?
“What started initially with just semiconductors is going into other areas, such as infrastructure, data centres and renewable energy. There is such a broad range of applications for this AI ecosystem to grow, which tells me that investors are interested in this appetite. This is a theme that is not going to go away.”
Notably, robotics and artificial intelligence ETFs have seen their popularity more than double compared to 2023. Meanwhile, local investors had already funnelled $30 million into AI beneficiary, cyber security ETFs, by March this year, a stark contrast to the $270,000 in net flows recorded for all of 2023.
As such, Jocum explained that an ETF wrapper is the ideal vehicle for allowing investors to reap the rewards.
“ETFs are owning a diversified basket of players within the AI space, and if one particular company either blows out their capex or doesn’t really realise their earnings expectations, then that could significantly impact the share price,” he said.
“That’s why owning a diversified set of companies exposed to an AI-related thing could protect investors from single company-specific risk. So that’s always an issue, and that’s why I believe that an ETF is the right wrapper to own, particularly with a thematic where you don’t know who is going to be the winner in the AI race for supremacy.”
In conversation with InvestorDaily, Betashares senior investment strategist Cameron Gleeson noted that, despite substantial AI investments, companies within the NASDAQ-100 are still generating impressive cash flows.
“If you look at the earnings growth of the companies that comprise the NASDAQ-100, while they are investing heavily in AI, that investment is paying dividends and they are still generating so much free cash flow. So despite their AI capex spend they continue to produce very strong earnings growth.”
At the same time, Gleeson noted that there could be a range of companies operating in adjacent spaces that perhaps have very strong upside but will take a lot longer to play through.
In this context, the investment strategist agreed that diversification is key.
“Because you’ve got that diversity…that is going to mean that you are less beholden to the risks relating to one particular application of AI,” he concluded.
