Don't Overthink AI -- ETFs Could Be the Safest Long-Term Play

Key Points

• Artificial intelligence players are well positioned to soar in the years to come as the market marches toward a value of $2 trillion.

• ETFs offer you the ability to invest in many of the most promising players.

• 10 stocks we like better than Global X Funds - Global X Artificial Intelligence & Technology ETF ›

Investors often think of technology stocks as the ultimate growth investment -- and if you happen to get in on the theme of the day at just the right time, you can win big. Whether it's investing across a theme like e-commerce or buying specific companies that have soared to stardom with their innovations -- such as Apple with the iPhone -- technology has presented investors with plenty of opportunity over the past couple of decades.

I probably don't have to tell you that the latest wave of technology excitement involves artificial intelligence (AI). Stocks involved in this area have skyrocketed, leading gains in the S&P 500 and the Nasdaq over the past two years, and this momentum continues today. In fact, it's set to continue for quite some time if analysts are right. Forecasts call for today's billion-dollar AI market to reach more than $2 trillion early next decade.

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What's happening around us supports this idea, with companies from Alphabet to Meta Platforms increasing their capital spending in recent times to boost their AI capacities. And just this week AI chip leader Nvidia announced a $100 billion investment in OpenAI as part of the research lab's infrastructure buildout.

So now is a great time to get in on AI. But here's the key. You don't have to overthink it -- exchange-traded funds (ETFs) could be the safest long-term play. Let's find out why.

Image source: Getty Images.

The struggle to choose potential winners

When you're about to invest in AI, you may struggle to choose potential winners. After all, big names like Nvidia or Alphabet may continue to win -- but you might also want to get in on a player that's earlier in the story and has even greater growth potential. Or, you may worry about investing too much in one theme – AI chipmakers, for example -- and miss out on another growth area, like robotics.

You also may not have the funds to invest in your dream portfolio of, say, eight or 10 AI companies -- and this can be frustrating.

Finally, if you're a cautious investor, you might not want to put too much of your cash into AI as you aim to diversify across stocks known for offering you safety -- such as pharmaceutical players and dividend stocks.

The solution is to turn to an ETF focused on AI. Many great ones exist, such as the Global X Artificial Intelligence and Technology ETF (NASDAQ: AIQ), a $5.4 billion fund that's advanced more than 200% since its launch in 2018 -- or one of the newest launches, Wedbush Funds' Dan Ives Wedbush AI Revolution ETF (NYSEMKT: IVES), based on the research of star analyst Dan Ives.

Growth throughout the AI story

Why an ETF? Because these funds invest in a great number of current and potential AI winners across specialty areas, from the infrastructure buildout to energy needs and robotics. So you may experience growth throughout the AI story, from the early phases through the later stages as AI is applied to real world problems. These funds also will offer you exposure to well-established players as well as younger companies that could see their revenues explode higher at a certain point during the AI story.

All of this brings a certain amount of security to your portfolio because you don't have to depend on the fortunes of just one company or theme within AI. If one of these falters, the others may perform well, and that limits the potential for losses.

In more good news, buying ETFs is simple. They trade on the market daily, so you can place an order as you would do when buying a stock. The one thing to keep an eye on, though, is an ETF's expense ratio. You'll want to only consider ETF's with ratios of less than 1% in order to maximize your gains and not pay out a lot in fees over time.

Now, does this mean you should favor ETFs over stock picking? Not at all. The two strategies are complementary. It's a great idea to choose quality stocks that you're familiar with and comfortable with across industries -- and in addition to this, to boost your diversification, pick up shares of an ETF. In the case of AI investing, an ETF could offer you the safest long-term play.

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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Apple, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.