The Best Artificial Intelligence (AI) ETF to Invest $1,000 in Right Now

Key Points

• Artificial intelligence is poised to create trillions of dollars in economic value.

• The Invesco QQQ ETF features substantial exposure to the leading tech stocks.

• But be aware that this ETF can also be volatile and susceptible to severe declines.

• 10 stocks we like better than Invesco QQQ Trust ›

You've probably heard a lot of talk about artificial intelligence (AI) at this point, but it's for a good reason.

AI is advancing at breathtaking speed, and it could mark the start of a golden age in technology. Over the next decade and beyond, new technologies, products, and industries may emerge that were previously just figments of the imagination.

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Estimates range, but researchers generally agree that artificial intelligence will create trillions of dollars in annual economic value. How does someone invest in such a wide-open opportunity? Casting a wide net may be the best way to go.

Here's my favorite exchange-traded fund (ETF) to capture AI's investment potential, and why it's a no-brainer to invest $1,000 in today.

Image source: Getty Images.

Invest in AI and other prominent growth trends with the Invesco QQQ ETF

Since its inception during the dot-com bubble in 1999, the Invesco QQQ ETF (NASDAQ: QQQ) has become arguably the leading innovation and technology-focused ETF. It tracks the Nasdaq-100, an index of the largest non-financial companies in the Nasdaq Composite.

Technology companies tend to list on the Nasdaq stock exchange, so its index and funds that follow it tend to have high tech exposure. The Invesco QQQ has over 57% exposure to technology companies and nearly 20% to the consumer discretionary sector. The ETF is very concentrated; the other market sectors make up the remainder of the fund. Healthcare is the third-largest, accounting for just 5.8% of the ETF.

The Invesco QQQ's top 10 holdings are:

Data source: Invesco.

These companies combine for just over half of the ETF, providing investors with instant exposure to the leading companies in today's growth trends, including AI, cloud computing, digital advertising, streaming, and more.

Strong long-term performance requires a strong stomach

When people measure investments, it's often against the S&P 500, the most popular and widely used stock market index. It's the benchmark people typically refer to when they talk about outperforming the market. The Invesco QQQ ETF has outperformed the S&P 500 handily over its lifetime:

QQQ data by YCharts

Will it continue to outperform? That's anybody's guess, but I would say that, given the world increasingly depends on technology and AI has only just begun, investors can probably anticipate strong performance from the Invesco QQQ ETF over the next decade and beyond.

However, nothing in life is free. The price of the Invesco QQQ ETF's stellar returns is an iron stomach. Faster-growing companies, particularly in the technology sector, tend to be more volatile. The ETF's heavy weighting in technology makes it prone to sharper declines than you would likely see from the S&P 500.

The below chart is similar to the first, except that it shows how deep the historical drawdowns have been for these two stock indexes:

QQQ data by YCharts

Steep declines can be stressful, so investors who struggle to watch their investments fluctuate should keep that in mind. A severe decline can take years to recover from -- look at the Invesco QQQ ETF's journey in the early 2000s.

The Invesco QQQ ETF is an ideal blend of risk and safety

Ultimately, its makeup is why the Invesco QQQ is my favorite AI ETF. While the technology sector as a whole can be volatile, the Invesco QQQ ETF represents approximately 100 prominent companies. Even if some of them lose their edge over time, the ETF's diversity means it would probably take a complete implosion of American and global technological progress for the ETF to fizzle out. That doesn't seem likely.

That said, investors should protect their money and peace of mind by maintaining a long-term time horizon, diversifying their portfolio well beyond the Invesco QQQ ETF, and regularly adding new funds so they can buy slowly over time, taking advantage of the inevitable ups and downs that come with investing in stocks.

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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, Costco Wholesale, Meta Platforms, Microsoft, Netflix, Nvidia, and Tesla. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.