XLK vs. CHAT: Broad Tech Exposure or a Focused AI Bet?

The State Street Technology Select Sector SPDR ETF (NYSEMKT:XLK) stands out for its scale and broad technology exposure, while the Roundhill Investments - Generative AI & Technology ETF (NYSEMKT:CHAT) takes a narrower, actively managed approach with higher costs and a thematic AI focus.

Both the State Street Technology Select Sector SPDR ETF (NYSEMKT:XLK) and the Roundhill Investments - Generative AI & Technology ETF (NYSEMKT:CHAT) target the technology space, but their strategies and risk profiles differ. XLK offers diversified exposure to the largest U.S. tech names, while CHAT zooms in on generative artificial intelligence and related themes, actively picking stocks it believes will benefit most from this trend. This comparison unpacks their differences in cost, performance, holdings, and risk to help investors see which may better fit their goals.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year weekly returns. The 1-yr return represents total return over the trailing 12 months.

CHAT’s expense ratio is meaningfully higher than XLK’s, making XLK the more affordable option for cost-conscious investors.

Performance & risk comparison

CHAT’s recent returns have outpaced XLK, but this comes with higher risk. Its larger drawdown and elevated beta signal greater volatility, which could be a trade-off for investors drawn to its AI focus.

What's inside

CHAT is an actively managed fund with 52 holdings and a mandate to capture the growth of generative artificial intelligence. The portfolio leans heavily into technology (85%), with smaller allocations to communication services and consumer cyclicals. Its top holdings include Alphabet Inc (NASDAQ:GOOGL), NVIDIA Corp (NASDAQ:NVDA), and Microsoft Corp (NASDAQ:MSFT), and the fund applies an ESG screen. At 2.7 years old, it is relatively new and intentionally concentrated around the AI theme.

XLK, by contrast, offers broad technology sector exposure with 70 holdings, covering nearly the entire U.S. tech landscape. Its top positions are Nvidia Corp (NASDAQ:NVDA), Apple Inc (NASDAQ:AAPL), and Microsoft Corp (NASDAQ:MSFT), reflecting the sector’s giants. XLK does not apply an ESG screen or thematic tilt, providing a more traditional approach to tech investing.

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What this means for investors

Many investors reach for AI funds expecting broad tech exposure, without realizing how much concentration they are taking on. That distinction sits at the heart of the decision between the Technology Select Sector SPDR Fund and the Roundhill Generative AI and Technology ETF, two funds that live in the same sector but reflect very different views on how to capture growth.

XLK is built as a core holding and offers broad access to the largest U.S. technology companies through a low-cost and rules-based structure. It spreads risk across established leaders whose earnings power drives long-term returns. CHAT takes a much narrower approach. It actively selects companies tied to generative AI and concentrates capital around a single theme. The trade-off is straightforward: XLK prioritizes scale and liquidity, while CHAT prioritizes thematic focus and the potential of outsized gains when AI enthusiasm runs hot.

For investors, XLK suits you if you are looking for steady exposure to tech without tying outcomes to a single narrative, while CHAT fits investors who are intentionally seeking AI exposure and willing to accept sharper swings and higher costs. The choice ultimately comes down to whether you want tech exposure anchored in broad earnings power or tied to continued confidence in a single trend.

Eric Trie has positions in Nvidia. The Motley Fool has positions in and recommends Alphabet, Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.