Investing in Artificial Intelligence (A.I.)

The S&P 500, one of the key US stock market indexes, has performed exceptionally well this year (Source: SP Global) fuelled by the emerging success of AI services and companies, such as ChatGPT, developed by OpenAI. These AI services shed light on advancements in natural language processing and the overall potential for AI-powered solutions across industries. Additionally, companies like Nvidia have been key in driving investor optimism through stellar earnings guidance. Nvidia’s financial projections have demonstrated the heightened demand for semiconductor chips and the promising future of the ecosystem behind AI.

The Potential of AI 

AI breakthroughs have the potential to improve profitability for companies, by automating tasks, optimizing processes, and making data-driven decisions. AI-backed systems can thus increase operational efficiency, reducing costs and bolstering profits.

AI can also revolutionize industries. For instance, in genomics, AI enables faster and more accurate analysis of vast amounts of genetic data, aiding in personalized medicine, disease diagnosis, and drug development. In cancer research, AI algorithms can analyze medical images, pathology slides, and patient data to assist in early detection, treatment planning, and precision medicine.

Investors can get exposure to companies at the forefront of these developments via the BMO NASDAQ 100 Index ETF (ZNQ/ZQQ) and the BMO ARK Innovation ETF (ARKK).

The Growing Ecosystem Powering AI 

While high-profile companies like Nvidia and other tech giants have garnered significant attention in the AI space, investment opportunities in the growing AI ecosystem extend beyond these industry giants. The expansive AI ecosystem involves a network of businesses that support AI development, implementation, and utilization, presenting a wide range of investment prospects.

  1. Semiconductor Industry: The rapid advancement of AI necessitates more demand for semiconductors, creating investment opportunities across various sectors. Apart from chip manufacturers, businesses involved in mining and refining base metals, which are essential for chip production, can experience potential windfalls. This includes companies engaged in producing, refining, and recycling materials like copper, tin, and nickel.
  2. Data Centers: As the backbone of the AI revolution, data centers play a crucial role in training, testing, and deploying AI algorithms. Investing in data center operators, infrastructure providers, and related businesses offers exposure to the increasing demand for data centers with higher processing capabilities and improved energy efficiency. This sector is expected to witness substantial growth as AI technologies continue to advance.
  3. Clean Energy Technologies: As the AI boom takes off, concerns about energy consumption and environmental impact arise. Investing in clean energy technologies can mitigate these challenges and support the sustainable growth of AI. Companies involved in renewable energy sources, energy storage, and energy-efficient infrastructure can play a crucial role in reducing emissions from data centers to power the AI revolution in an environmentally friendly manner.

Investors can participate in these sectors with the BMO Equal Weight Base Metals Hedged to CAD Index ETF (ZMT), BMO Brookfield Global Real Estate Tech Fund ETF Series (TOWR), and BMO Clean Energy Index ETF (ZCLN).

Benefits of Using ETFs to Invest in AI 

Investing in AI and the sectors involved through ETFs offers several advantages over buying individual companies like Nvidia. ETFs offer better diversification than single stocks within a sector, reducing risk while offering similar exposure. They also provide lower transaction costs and higher liquidity in many cases, proving to be transparent and flexible investment vehicles.



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Mirza Shakir

Associate Portfolio Manager, BMO ETFs

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