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Investing in the AI theme for the long haul. How to pick the winners

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Fotografielink | Istock | Getty Images

Artificial intelligence has shaken up the investing landscape since the groundbreaking launch of ChatGPT in November 2022.

Since then, investors have poured money into all things related to AI as they hunt for the next big winners. In 2023, a group of major technology players dubbed the Magnificent Seven — Tesla, Amazon, Meta Platforms, Apple, Microsoft, Alphabet and Nvidia — contributed to a large chunk of the market’s rally.

Those tail winds continued into 2024, but even the winners eventually reach their limit. Indeed, some of this year’s highest fliers came down to earth on Friday, with Big Tech names dragging down the Nasdaq Composite by more than 2%.

“You have to do your work,” said Jay Woods, chief global strategist at Freedom Capital Markets. “You want to do the research, you want to know what you’re buying, you want to know the risks involved. In AI right now, there are a lot of unknowns.”

AI is poised to be a central theme as the technology transitions from early-stage winners to second-stage adopters. Portfolio and wealth managers say investors may want to undertake certain strategies if they’re looking for long-term plays in the space.

What to look for

There’s no secret formula to investing and picking artificial intelligence stocks, but investors can keep an eye on certain metrics and trends when weeding out the winners from the duds.

When investing in any new industry, Carol Schleif, chief investment officer at BMO Family Office, recommends that investors keep an eye on companies’ cash burn and how they are spending their money. Be attentive to the fine details, including how a company works through a backlog and how much money it devotes toward infrastructure.

When it comes to chip stocks, Schleif also recommends taking a look at government grants. The industry won big in 2022 when President Joe Biden signed the CHIPS Act into law. The measure allocated funds toward building out semiconductor production on U.S. soil.

Samsung Electronics is in line to receive funding from CHIPS for making semiconductors in Texas, while Intel has been awarded up to $8.5 billion from the measure.

“Focus on the underlying fundamentals, and are they moving in the right direction, [rather] than just last quarter’s earnings,” Schleif advised.

Investors should also avoid blindly chasing the hot winners that have benefited from AI enthusiasm. For Laffer Tengler Investments CEO and CIO Nancy Tengler, that means looking at some of the old-economy stocks embracing the new digital wave. She likes Microsoft and IBM, a pair of tech industry veterans.

When building any portfolio, financial advisors and portfolio managers stress the importance of diversification — and the same applies to AI.

An exchange-traded fund might be a good way to get that diversified exposure to a basket of stocks that could benefit from the AI theme, rather than sticking with one or two promising names.

Consider diversifying through ETFs

Selecting ETFs that incorporate dozens of names can be a lower-risk way to diversify, said Marguerita Cheng, a certified financial planner and CEO of Blue Ocean Global Wealth in Gaithersburg, Maryland.

She highlighted the Global X Robotics and Artificial Intelligence ETF (BOTZ), the First Trust Nasdaq AI and Robotics ETF (ROBT) and the Global X Artificial Intelligence & Technology ETF (AIQ).

“That’s one way to get some exposure without putting the proverbial all the eggs in that one basket,” said BMO’s Schleif. “You want to be able to focus on a few different avenues such that you can withstand the volatility.”

AI ETFs and their performance in 2024

Ticker Name Expense ratio %chg ytd
BOTZ Global X Robotics and Artificial Intelligence ETF 0.68% 0.53%
ROBT First Trust Nasdaq AI and Robotics ETF 0.65% -10.34%
AIQ Global X Artificial Intellligence & Technology ETF 0.68% 0.90%
CHAT Roundhill Generative AI and Technology ETF 0.75% 3.20%

Source: fund websites, FactSet

Volatility can be a bitter pill, particularly for newer investors. Stocks tend to rise at first when a new theme hits the mainstream, but often suffer at some point from volatility and pullbacks, said Helen Dietz, a CFP and managing director at Aspiriant.

“The newer the trend, the more volatile the trend,” she said. “The corrections of those individual stocks, or those sectors, can be quite violent at times, which is not unusual, and the investing public gets scared out of that.”

To that effect, Nvidia’s shares suffered a setback on Friday when they tumbled 10% and posted their worst day since March 2020. The decline put a sizable dent into the chip stock’s year-to-date gains, but it remains up nearly 54% in 2024. Fellow AI play Super Micro Computer also took a nosedive that day, dropping 23%.

ETFs typically include a range of names and can vary in weighting. Though the BOTZ ETF and the Roundhill Generative AI and Technology ETF (CHAT), both currently lag some of this year’s popular AI winners. However, the underlying names are varied: BOTZ holds Nvidia and robotics play Intuitive Surgical, while CHAT’s top holdings include Microsoft, Meta and ServiceNow.

Schleif recommends looking for ETFs with high trading volume and backed by reputable companies. Investors should also be mindful of fees, which can take a bite out of returns if they are too high.

While the gains may fall short of the surge seen in stocks such as Nvidia and Meta, ETFs allow investors to obtain lower-risk exposure to the sector, Woods said. Longer term, investors can also use the leadership in these funds to consider picking out individual names further down the road.

“The old cliché is timing the market and then hoping you find that individual stock that can really be the big performer,” Woods said. “If you want to be involved, you want to be diversified and I think an ETF is the best way to do that.”

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Treasury Secretary Bessent says market woes are more about tech stock sell-off than Trump’s tariffs

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Treasury Secretary Scott Bessent speaks to reporters outside the West Wing after doing a television interview on the North Lawn of the White House on March 13, 2025 in Washington, DC. 

Andrew Harnik | Getty Images

Treasury Secretary Scott Bessent said Wednesday the sell-off in the stock market is due more to a sharp pullback in the biggest technology stocks instead of the protectionist policies coming from the Trump administration.

“I’m trying to be Secretary of Treasury, not a market commentator. What I would point out is that especially the Nasdaq peaked on DeepSeek day so that’s a Mag 7 problem, not a MAGA problem,” Bessent said on Bloomberg TV Wednesday evening.

Bessent was referring to Chinese AI startup DeepSeek, whose new language models sparked a rout in U.S. technology stocks in late January. The emergence of DeepSeek’s highly competitive and potentially much cheaper models stoked doubts about the billions that the big U.S. tech companies are spending on AI.

The so-called Magnificent 7 stocks — Apple, Amazon, Tesla, Alphabet, Microsoft, Meta and Nvidia — started selling off drastically, pulling the tech-heavy Nasdaq Composite into correction territory. The tech-heavy benchmark is down about 13% from its record high reached on December 16.

However, the secretary downplayed the impact from President Donald Trump’s steep tariffs, which caught many investors off guard and fueled fears of a re-acceleration in inflation, slower economic growth and even a recession. Many investors have blamed the tariff rollout for driving the S&P 500 briefly into correction territory from its record reached in late February. Wall Street defines a correction as a drop of 10% from a recent high.

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S&P 500, YTD

Trump signed an aggressive “reciprocal tariff” policy at the White House Wednesday evening, slapping duties of at least 10% and even higher for some countries. The actions sparked a huge sell-off in the stock market overnight, with the S&P 500 futures declining nearly 4% and the blue-chip Dow Jones Industrial Average shedding 1,100 points. The losses will likely but the S&P 500 back into correction territory in Thursday’s session.

“It’s going to be fine if we put the best economic conditions in place,” Bessent said in a separate interview on Fox Wednesday evening. “If you go back and look, the stock market actually peaked on the [DeepSeek] Chinese AI announcement. So a lot of what we have seen has been just an idiosyncratic tech sell-off.”

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Conservative cable channel Newsmax shares plunge more than 70% after a dizzying 2-day surge

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A Newsmax booth broadcasts as attendees try out the guns on display at the National Rifle Association (NRA) annual convention in Houston, Texas, U.S. May 29, 2022. 

Callaghan O’hare | Reuters

Shares of conservative news channel Newsmax plunged more than 70% on Wednesday as its meteoric rise as a new public company proved to be short-lived.

The stock tumbled a whopping 72% in afternoon trading, following a 2,230% surge in Newsmax’s first two days of trading after debuting on the New York Stock Exchange. At one point, the rally gave the company a market capitalization of nearly $30 billion — surpassing the market cap of legacy media companies like Warner Bros. Discovery and Fox Corp.

Newsmax was listed on the NYSE via a so-called Regulation A offering, instead of a traditional IPO. Such an offering allows small companies to raise capital without undergoing the full SEC registration process. The primary focus is to sell to retail investors, in this case It was sold to approximately 30,000 retail investors. 

The public offering indeed garnered the attention from retail traders, some of whom touted the stock as the “New GME” in online chatrooms. GME refers to the meme stock GameStop, which made Wall Street history in 2021 by its speculative trading boom.

Newsmax has a small “float,” or shares available for trading. Less than 6% of Newsmax shares, or 7.5 million shares out of a total of 128 million fully diluted shares, are available for public trading.

The conservative TV news outlet has seen its ratings rise with the election of President Donald Trump and other prominent Republicans — although it still falls behind the dominant Fox News. Overall, Newsmax ranks in the top 20 among cable network average viewership in both prime time and daytime, Nielsen said.

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Stocks making the biggest moves midday: TSLA, DJT, AMZN, RIVN

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