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High Hopes May Slow AI Ride: Are ETFs Better Bets Than Stocks?

By now, the AI frenzy is known to all thanks to Nvidia’s NVDA immense run since reporting upbeat earnings and offering superb guidance on AI strength. In fact, on May 30, Nvidia joined the elite club of Wall Street — the one trillion market-cap holders — for a brief period. Notably, Nvidia’s shares jumped about 30% in the four days following its earnings release. In any case, Nvidia shares are firing on all cylinders this year and the stock is up about 170%.

For the second quarter of fiscal 2024, the graphics chipmaker expects revenues of around $11 billion, plus or minus 2% on increased demand for its data-center family of products. Nvidia’s graphics processing units, or GPUs, are key to generative AI platforms like OpenAI’s ChatGPT and Google’s Bard.

Nvidia’s success acted as a cornerstone for the entire AI as well as semiconductor space. No wonder, Global X Artificial Intelligence & Technology ETF AIQ is up 36% in the past five days.

Is Everything Rosy?

Not really. The C3.ai AI stock — a beneficiary of the Nvidia rally — gained 43.7% for five days only to nosedive on May 31 on underwhelming guidance. The stock was off 9% on May 31 and lost 21.3% after hours, even after beating expectations on the top and bottom lines.

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However, C3.ai's projected revenues for the entirety of fiscal 2024 seemed to fall short of the expectations set by Wall Street. Following Nvidia's impressive achievement, investors exhibited severe scrutiny of C3.ai on Wednesday.

The company anticipates a revenue range of $295 million to $320 million, whereas data from S&P Global Market Intelligence indicated that analysts are anticipating revenues closer to $321 million for the fiscal year, as quoted on Yahoo.

Road Ahead Looks Rough for Nvidia Too

NVDA shares lost about 5% on May 31. ARK Invest CEO Cathie Wood tweeted that Nvidia's shares are too pricey and is “priced ahead of the curve,” as quoted on Businessinsider.com. It seems that investors who don’t have a strong stomach for risks, jumped into profit booking.

How to Move Ahead?

Investors intending to ride NVDA’s AI-growth story but still wary of the high valuation may take the ETF route. This is because ETFs help investors to mitigate one stock’s average performance with other stocks’ stellar performances.

Below, we highlight a few ETFs with heavy exposure to Nvidia for investors seeking to bet on the stock with much lower risk.

VanEck Semiconductor ETF (SMH)  – about 15% Exposure to NVDA

AXS Esoterica NextG Economy ETF (WUGI) – about 14% focus on NVDA

Simplify Volt RoboCar Disruption and Tech ETF (VCAR) – about 10% focus on NVDA

Software Providers: Next AI Bet?

According to Cathie Wood, the next beneficiaries of the artificial intelligence craze fueled by Nvidia will be software providers, per the abovementioned source. The Zacks Rank #1 (Strong Buy) SPDR S&P Software & Services ETF (XSW) is a great bet here.

Notably, Wood likes UiPath Inc. (PATH), which was up 8% on May 31. It is an end-to-end platform for automation, combining Robotic Process Automation solution for digital business operations. ARK Autonomous Technology & Robotics ETF ARKQ has a considerable focus on PATH.

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NVIDIA Corporation (NVDA) : Free Stock Analysis Report

C3.ai, Inc. (AI) : Free Stock Analysis Report

VanEck Semiconductor ETF (SMH): ETF Research Reports

ARK Autonomous Technology & Robotics ETF (ARKQ): ETF Research Reports

Global X Artificial Intelligence & Technology ETF (AIQ): ETF Research Reports

AXS Esoterica NextG Economy ETF (WUGI): ETF Research Reports

Simplify Volt Robocar Disruption and Tech ETF (VCAR): ETF Research Reports

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Zacks Investment Research