In the early innings of 3Q 2024, there’s evidence of a rotation out of previously beloved mega-cap growth stocks into value and small-cap equities. Many of those stocks have ties to the AI megatrend.
For what felt like an eternity, value and small-caps were largely glossed over as market participants were enamored by AI. That’s recently changed, though it’s not an indictment of AI’s investment merits. In fact, some would argue broadening breadth is important to the bull market’s medium-term prospects. On a related note, some experts believe an earnest rotation away from growth equities isn’t sustainable. That indicates there’s likely still plenty of gas in the tank of the AI trade. That could be encouraging for ETFs like the WisdomTree Artificial Intelligence and innovation Fund (WTAI ).
Helped by a weighting methodology that prevents excessive exposure (none of its holdings exceed a weight of 3.10%) to a small number of stocks, WTAI has recently proven more durable than cap-weighted AI and growth funds. For the week ending July 16, the ETF is higher by 1.72%. Other AI and AI-related ETFs are sporting smaller gains or modest losses. WTAI’s recent relative sturdiness could be a sign that when asset allocators revisit growth stocks, the ETF could be poised for leadership.
AI Taking a Breather, Not Going Away
As things stand today, AI hasn’t dramatically altered the world, but investors may be better served by focusing on evolution over revolution. Momentum for the former could signal longer-ranging opportunity with assets such as WTAI.
Some of that momentum could arrive in the form of newer though familiar contributors, such as Apple (AAPL). To date, Apple’s AI efforts have been criticized. But the company attempting to improve on that front. And its AI endeavors could compel more customers to upgrade to the upcoming iPhone 16.
“If Apple Intelligence creates enough curiosity to get users thinking that they need to try out that iPhone 16, that can have a huge impact on Apple’s bottom line,” noted Christopher Gannatti, WisdomTree’s global head of research.
WTAI's Depth Is Vital
Gannatti illustrates an important point. The chips found in smartphones aren’t produced by AI giant Nvidia (NVDA). If Apple Intelligence takes flight, it could add breadth to the AI semiconductor ecosystem. That’s pertinent to investors mulling WTAI, because the ETF is home to more than 15 chip stocks.
Looking further out, WTAI’s depth is vital because it provides an avenue for investors to exercise patience with AI. And that’s an underappreciated, though important, element.
“The AI ecosystem is broader, however, than just the largest companies. We believe we are watching a revolution that will be playing out over the next 10 to 15 years. And investors will get excited about different types of companies along the way. WTAI is positioned to recognize that there will not be just one topic, like large language models, that remains exciting for the next decade,” concluded Gannatti.
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