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

The artificial intelligence (AI) market has gone bananas in recent years. Fueled by massive advancements in large language models (LLMs) and overall compute power, AI innovation is off to the races. Many experts believe we're now experiencing the biggest technological shift since the invention of the internet.

Want to get your portfolio involved in this multi-decade opportunity? The exchange-traded fund (ETF) below has you covered.

This artificial intelligence ETF has you covered

While there are many AI ETFs to choose from, the Xtrackers Artificial Intelligence and Big Data ETF (NASDAQ: XAIX) is certainly one of the most attractive. This ETF tracks the Nasdaq Global Artificial Intelligence and Big Data Index, which has a unique approach to AI investing. While other funds and indexes add companies to their portfolio after they've deemed them to be AI-driven businesses, this one attempts to get ahead of the curve by identifying AI businesses before others realize that they are in fact exposed to AI.

Within this ETF's portfolio you'll find a host of familiar AI names like Nvidia and Oracle. But you'll also find companies that, while not obviously related to AI, are actually adopting these technologies so rapidly into their business models that they're more exposed to this generational technological shift than most realize. Bank of America, for instance, is the fourth-largest holding, with a portfolio weighting of 4.6% -- nearly as large of a stake as Nvidia.

What does Bank of America have to do with AI? In recent years, the company has filed for hundreds of AI patents, a portfolio that now boasts nearly 1,100 AI and machine learning patents in total. The bank spent more than $12 billion on technology over the past year, around $4 billion of which was directed toward new initiatives like AI. So while other AI ETFs wouldn't consider Bank of America because it appears to be a traditional bank, the Xtrackers Artificial Intelligence and Big Data ETF noted the company's heavy investments into AI, opting to bet that the company will be riding AI tailwinds far more than most anticipate.

Bank of America isn't the only example of this in Xtracker's portfolio. Adobe, Intuit, Verizon, Toronto-Dominion Bank -- all are part of the Xtrackers portfolio, even though they are more beneficiaries of AI investment than pure-play suppliers. Some of the businesses are in the portfolios of other AI ETFs, but Xtrackers is generally willing to weight them more heavily. All of the companies listed so far, for example, are in the top 25 of the Xtrackers portfolio, which has around 88 total holdings as of this writing.

A willingness to expand the definition of which businesses will benefit from AI is the biggest difference between this AI ETF and the competition. While other funds are focused strictly on businesses developing and selling AI technologies, the Xtrackers ETF also includes businesses that are investing heavily into these technologies, betting that these investments will drive long-term growth that outpaces the competition.

But before you jump in, there are a few things to know.

Two things to know before buying this AI ETF

Before you buy any ETF, it's important to review its expense ratio. The Xtrackers Artificial Intelligence and Big Data ETF has an expense ratio of 0.35%. That's higher than many plain vanilla index funds, but it's not bad compared to other AI ETFs. The Invesco AI and Next Gen Software ETF, for comparison, charges 0.6% -- nearly twice as much.

The other thing to note is that this ETF has performed incredibly well. Since the start of 2023, its value has more than doubled. That's a good problem to have for existing investors, but new investors should understand that history doesn't guarantee future results. We are in the midst of an AI boom right now. And while AI innovation, demand, and spending should all grow heavily over the decade to come, mega-trends like this can still get overpriced over the short term. At minimum, expect the AI space to exhibit plenty of volatility, similar to other high-multiple, rapid-growth industries. If you buy into the Xtrackers Artificial Intelligence and Big Data ETF, make sure you have a long-term perspective with a willingness to stomach extreme volatility.

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Bank of America is an advertising partner of Motley Fool Money. Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Bank of America, Nvidia, and Oracle. The Motley Fool has a disclosure policy.