Advances in artificial intelligence (AI) have captured the imagination of the market and the general public alike in 2023, so it’s no surprise that AI-focused ETFs are enjoying solid year-to-date gains. With just $13 million in assets under management (AUM), the WisdomTree Artificial Intelligence and Innovation Fund (BATS:WTAI) could be a hidden gem among these funds. Here’s why there’s plenty to like about this tiny, under-the-radar ETF.
AI is Just Getting Started
WisdomTree writes that AI “is a transformative megatrend that has the potential to influence nearly all aspects of how we live and work globally in the years to come.”
And while AI offers plenty of long-term growth potential, it’s also being used in plenty of applications that are impacting our lives and businesses today — whether it’s chatbots like ChatGPT, self-driving technology in cars, industrial automation, or workflow automation software.
Legendary investor Stanley Druckenmiller, who reportedly returned 30% annually over a 30-year timeframe while running Dusquense Capital, recently said that AI could be “every bit as impactful as the internet.” He also said that while he believes we are in for a “hard landing” economically, AI leaders like Nvidia and Microsoft could be “unbelievable opportunities” coming out of a hard landing.
Further, he noted that even if there is a major recession, Nvidia’s opportunity in AI is so compelling that he’s not convinced that Nvidia’s share price will go down, even though it sports a high price-to-earnings multiple.
Thoughtful Diversification
WTAI offers investors a diversified and comprehensive way to gain exposure to AI. Not only does it hold 76 different stocks, but it’s also not overly concentrated toward its top positions like some other AI-themed ETFs. Its top 10 holdings make up just 22.6% of the fund, which means that investors aren’t left overly exposed to the ups and downs of a few large holdings. Top position Nvidia accounts for just a 3% weighting, which is reasonable.
Another thing I like about WTAI’s holdings is that it invests across a wide-ranging swath of today’s AI universe. WisdomTree says that the WTAI ETF “seeks to offer precise access to the AI megatrend through direct investment in publicly listed firms all over the globe that are focused on capitalizing on AI in a diverse array of technologies and applications.”
WTAI places its investment focus in AI across four key areas — AI software, semiconductors, hardware (which would include the likes of autonomous vehicles, drones, robotics, and industrial automation), and what it calls “innovation,” an all-encompassing category that could include any company using AI to disrupt existing industries.
Below, you’ll find a snapshot of WTAI’s top holdings using TipRanks’ holdings tool, which gives investors a comprehensive overview of an ETF’s top holdings and their characteristics.
Semiconductors are crucial for powering AI applications, and you’ll find plenty of leading semiconductor names here, like Nvidia, Taiwan’s Alchip Technologies, Advanced Micro Devices, and Lattice Semiconductor.
Nvidia is a semiconductor leader when it comes to AI, with some sources estimating it has up to an 85% share of the GPU market, but don’t count out the likes of AMD, which Morgan Stanley analyst Joseph Moore recently said could have an opportunity within AI that is multiple times larger than originally anticipated. Semiconductor fabrication companies like Taiwan Semiconductor and ASML Holding N.V. also have a place in the top 10 here, as AI wouldn’t be possible without these companies manufacturing the chips behind it for the likes of Nvidia and Advanced Micro Devices.
WTAI also holds the mega-cap tech names, like holding Meta Platforms, and further down the list, Microsoft, Alphabet, and Amazon, which are all making exciting advances in AI technology of their own. The portfolio also includes software companies like ServiceNow and UiPath that utilize AI within their offerings in order to help customers streamline and automate their workflows.
An additional thing you’ll notice about WTAI’s top holdings is that they have some very strong Smart Scores. 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.
Nvidia, C3.Ai, Lattice Semiconductor, Cadence Design Systems, and ASML lead the way with ‘Perfect 10’ Smart Scores. Meanwhile, AMD and Infineon Technologies also have Outperform-equivalent ratings, with Smart Scores of 8 and 9, respectively.
Is WTAI a Buy, According to Analysts?
Analysts are also bullish on WTAI, giving it a Moderate Buy rating. Of the 886 ratings on WTAI, 70.56% are Buys, 24.32% are Holds, and 5.11% are Sells. The average WTAI stock price target of $20.13 implies upside potential of ~15% from current levels.
Reasonable Expense Ratio
WTAI has a reasonable expense ratio of 0.45%. While this isn’t as cheap as one would expect from a low-cost, broad-market index fund, this is at least reasonable for a specialized, thematic ETF like this. While it’s a bit higher than I would normally like to see, when looking at a number of other popular AI-themed ETFs using TipRanks’ ETF comparison tool, WTAI has the lowest expense ratio of the bunch, narrowly edging out the iShares Robotics and Artificial Intelligence Multisector ETF (NYSEARCA:IRBO) and coming in much lower than several other prominent names.
TipRanks users can use the comparison tool to easily compare up to 20 stocks or ETFs on a wide variety of customizable key criteria, such as price, Smart Scores, past performance, AUM, and much more.
A Strong Choice for Investing in the AI Megatrend
One risk that investors should be aware of is that at $13 million in AUM, WTAI is a very small ETF, which could make it more volatile than larger ETFs. However, it also has enough daily trading volume that liquidity shouldn’t be an issue for the average retail investor.
In summary, with a reasonable expense ratio (especially when compared to other AI-themed ETFs) and a well-diversified portfolio of holdings that encompasses all aspects of the AI space, WTAI looks like a strong choice for investors who want to gain exposure to this powerful long-term megatrend.
Disclosure