Yes, it is possible to invest in artificial intelligence and do without (if desired) Nvidia in the portfolio, although there are well-founded theories that argue that the megacaps are destined to continue leading the disruptive wave. And yes, you can talk about AI with specific names just by following the path explored by specialized US exchange-traded funds. It is not easy, of course, to break away from the flock. Within the Nasdaq 100 index, the five largest companies collectively account for half of the market capitalization, and among the top ten, 72%. In fact, there are three names in the exclusive trillionaire club: Microsoft, Nvidia, and Apple, with market values above 3 trillion dollars. Such is their weight in the market - remember the Magnificent Seven (along with Amazon, Alphabet, Meta, and Tesla) - that the market scare they gave at the beginning of this year still has some tech investors shaking. At the worst market moment, on April 8, the day before Donald Trump announced his tariff pause, American technology came close to entering a correction of over 20% after years of exuberance.
For those of us outside the AI environment, if that is even possible, generality still reigns in conversations where specificity is sometimes desired. AI encompasses practically everything from software developers, data warehouses, the energy needed to connect them, is used to improve body prosthetics, accelerate cancer treatments; or, returning to our field, in portfolios recommended by robo-advisors.
Allianz Global Investors, founder of one of the oldest European AI funds, defends the idea that we are still in the very early stages of what is to come. In a stage where companies developing infrastructure, data centers, and digitization are the big beneficiaries of AI. Currently, we are still teaching machines to learn our language and robots (lots of robots) to move. Nevertheless, they believe that in 10 or 15 years, AI could be very close to being autonomous and functioning like human intelligence.
James Chen is the manager of the Allianz Artificial Intelligence, a fund with $495 million in assets under management. He was in Madrid last week, once again, to defend his position and to explain why large companies, the market megacaps, will be the winners today and tomorrow in this race. He decided to compare this bubble with the dot-com bubble of 2000. His theory is based on the fact that AI requires billion-dollar investments to develop, something that only a few companies can afford. Meta announced that it will spend $65 billion on AI this year alone; Alphabet has announced another $75 billion.
And this marks another difference with the 2000 bubble: back then, companies went public with only three years of history and losses; now, IPOs are scarce. OpenAI, the sector's main reference, will eventually become a public company, says Chen, but it will be of "immense size" when it does. Recent valuations give the creator of ChatGPT a value exceeding $300 billion.
What does all this imply? Simply put, these are healthy companies, without debt problems, financing AI discoveries with their own funds, cutting dividends or postponing buybacks, which are popular in shareholder compensation in the US. And this is the most favorable context, if you will, for investing. "The market is saying something" because otherwise, "tech companies would not be at all-time highs," Chen concludes.
Nvidia is everywhere. No portfolio can resist it, which is logical considering its size (more than twice Spain's GDP). But there is life beyond if you want to diversify your portfolio with other names. The AI megafunds, made in the USA, have several dozen names among their favorite candidates to lead the next AI wave. But above all, what they offer their participants is profitability. Of the six selected ETFs, one was founded in 2013 and the rest between 2016 and 2018. Since then, the average annual return of these products exceeds the coveted 7% in the financial world, which would double savings in a decade. However, Defiance Quantum ETF is out of the equation, with a return of 20.8% since 2018 and over 25% in five years. With $1.36 billion in assets under management, the firm led by Sylvia Jablonski specializes in thematic ETFs based on computing and machine learning.
The most prominent ETF, among half a dozen from the same company, is Global X Robotics & Artificial Intelligence, with an 8.3% return since its inception nine years ago and assets of $2.58 billion. Also noteworthy are BlackRock's fund, iShares Future AI & Tech, and Robo Global Robotics & Automation, with nearly $1 billion in assets under management; and in the $400-500 million range; the ETF First Trust Nasdaq Artificial Intelligence and Robotics and Invesco AI and Next Gen Software.
Which companies are repeated in their portfolios?Palantir Technologies stands out, the 11th in the Nasdaq 100 by weighting, with a market capitalization of over $300 billion. Its appreciation in the last five years has approached 1,290%. Based in Palo Alto, Palantir's name comes from the Tolkien world and means something like 'seeing stones.' In reality, they help governments and companies manage their data, using AI, and their software is highly sought after, especially in times requiring high cybersecurity. Another example is Intuitive Surgical, with a $200 billion market value and a 200% increase in five years. Their business involves developing robots used in less invasive surgical operations. The Da Vinci robot is at the forefront of global excellence and is used for prostate surgeries, some cancers in the reproductive system area, or maxillofacial surgery. It takes orders from the surgeon and executes them. It is also used in Spain.
Also noteworthy is the Swiss giant ABB, with a market capitalization of over $108 billion, manufacturing everything from robots to electric chargers, 24-hour control systems, machinery for the metallurgical industry, or renewable energy generators. It has risen 150% in five years.
Vertiv, also from the US, now worth over $44 billion in the stock market thanks to its shares soaring over 700% since 2020. What does it do? Everything related to helping keep IT equipment and databases well-cooled, stored, and connected for companies. Other names that appear in these ETFs are Rockwell Automation, Symbotic, Pegasystems, or the Japanese Yokogawa Electric.
From Generali Investments, TSMC, a Taiwanese semiconductor firm, stands out, as it has just announced a $100 billion investment in AI this year, with 25% of its sales already from AI chips. Software companies are struggling to monetize their AI investments, although there are exceptions. "One of them is Confluent, a real-time data infrastructure software company, which counts OpenAI among its clients" and has losses of 12% this year and almost half in the last five years. The arrival of AI co-pilots and agents could improve the finances of software manufacturers, say La Financiére de l'Échiquier, who talk about a market that will reach "$1.8 trillion in 2030, 5.4 times more than in 2024." After the tariffs, their managers decided to rebalance the portfolio and give more weight to less affected firms, such as Elastic and Dynatrace, and entered Marvell, which manufactures the trendy product, semiconductors.