Shares of Nvidia (NVDA) are down a staggering 17.22% for the week ending Sept. 4. That decline is made all the worse when considering U.S. markets were closed on Monday in observance of the Labor Day holiday. Sure, Nvidia is just one example, but it’s widely viewed as one the equity proxies on the AI investment theme.
Recent weakness in shares of the semiconductor giant underscore a few points. First, stock-picking in the artificial intelligence arena is tricky. That underscores the benefits of ETFs such as the WisdomTree Artificial Intelligence and innovation Fund (WTAI ).
Second, it’s becoming increasingly apparent that investors will need to exercise some patience if they hope to reap large rewards from AI stocks. WTAI’s broad-based approach mitigates single-stock risk (unlike some rivals). The fund can be useful for market participants looking to employ some AI-related restraint. It’s a good thing, too, because some experts believe patience will carry the day when it comes to AI investing.
AI ETF WTAI Has Merit
One reason some AI stocks have recently pulled back is because there are signs the U.S. economy is cooling. While a recession could well be averted, economic lethargy could compel some management teams to dial back AI spending. In other words, investors considering assets such as WTAI need to examine differences between the long-term AI outlook and the current macroeconomic situation.
“Investors are debating whether future revenues for top tech and cloud computing firms could justify billions of dollars of capital spending being poured into artificial intelligence (AI). We think it’s key to distinguish between the individual companies and broader economy when gauging the impact,” according to BlackRock.
Spending Needs to Justify the Ends
There’s another short-term versus long-term scenario that is relevant when examining AI ETF like WTAI. More and more, analysts and investors want to know that AI adopters are making investments in the technology that will pay dividends over the long haul. That’s a plausible expectation, because AI services and technology are expensive. Said another way, the artificial intelligence spending needs to justify the ends.
“That divergence has spurred jitters among investors – but we think patience is needed. Some big spenders on AI have earmarked capex for building new data centers and exponentially multiplying processing power for AI,” added BlackRock. “Such plans take years – not quarters – to complete. So it may take some time for revenues to fully realize AI capital spending. Some tech companies are already reporting increasing revenues from the roll out of AI-related products.”
Still a Nascent Arena
Bottom line: Artificial intelligence is still in its infancy. And the related stocks aren’t going to move up in straight-line fashion. There will be fits and starts, but some of those bumps can be smoothed out by opting for an ETF like WTAI over individual stocks.
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