Better Artificial Intelligence ETF: Roundhill's CHAT vs. State Street's XLK

The Roundhill Generative AI & Technology ETF (NYSEMKT:CHAT) provides high-conviction exposure to the generative artificial intelligence theme, whereas the State Street Technology Select Sector SPDR ETF (NYSEMKT:XLK) offers broad, low-cost access to technology giants within the S&P 500.

Both funds target the growth potential of the technology sector but employ different methodologies. XLK is a pillar of the sector-rotation strategy, holding established leaders, while CHAT seeks to capture the specific evolution of artificial intelligence through a more thematic and active approach across various industries.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-year return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The State Street Technology Select Sector SPDR ETF is significantly more affordable for long-term holders with an expense ratio of 0.08%. In contrast, the Roundhill Generative AI & Technology ETF offers a higher payout with its 1.9% dividend yield.

Performance & risk comparison

What's inside

The State Street Technology Select Sector SPDR ETF tracks the Technology Select Sector Index, maintaining 100% exposure to the information technology sector. Its portfolio holds 73 securities, and its largest positions include Nvidia (NASDAQ:NVDA) at 14.31%, Apple (NASDAQ:AAPL) at 12.98%, and Microsoft (NASDAQ:MSFT) at 9.90%. The fund was launched in 1998, and has paid $0.79 per share over the trailing 12 months, which on its recent ~$185.22 share price works out to a 0.4% yield.

The Roundhill Generative AI & Technology ETF takes a thematic approach with a portfolio comprised of 77% technology, 15% communication services, and 5% consumer cyclical stocks. It holds 52 securities, and its largest positions include Nvidia at 6.86%, Alphabet (NASDAQ:GOOGL) at 5.46%, and SK Hynix (KOSE:A000660) at 4.57%. The fund was launched in 2023, and has paid $1.68 per share over the trailing 12 months, which on its recent ~$87.97 share price works out to a 1.9% yield.

For more guidance on ETF investing, check out the full guide at this link.

Which looks like the better buy

Investors looking to capitalize on the generative AI boom can do so efficiently through the State Street Technology Select Sector SPDR ETF (XLK) and Roundhill Generative AI & Technology ETF (CHAT). Personally, I would invest in CHAT to gain AI exposure for several reasons.

CHAT is an actively managed fund, which is why its expense ratio is so much higher, but this gets you an ETF that can change with the rapidly evolving AI sector. Moreover, CHAT holds key players in the AI race regardless of how the stock is classified. For example, Alphabet-owned Google is a top holding, but this equity is not in the XLK fund because of the underlying index it tracks.

CHAT also pays a significantly higher dividend yield, and has delivered a strong one-year return. That said, the ETF is not for the faint of heart. It was founded in 2023, the year OpenAI's ChatGPT exploded onto the scene, so it doesn't have much history to inform how it performs during economic or sector downturns. Since it focuses only on GenAI stocks, if this one industry starts to experience a decline, the fund's performance will suffer.

Meanwhile, XLK's broader lens across all tech companies in the S&P 500 means if AI stocks struggle, that can be balanced out by the fund's holdings outside AI. This and XLK's lower expense ratio makes it a good ETF for those who want a more conservative approach to AI stocks.

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