To The Moon

With $NVIDIA(NVDA)$ providing clues of the robust AI demand from enterprises, we can consider to invest in thematic ETFs like the $ISHARES FUTURE AI & TECH ETF(ARTY)$ but it involves both potential benefits and risks.

Given the robust AI demand from enterprises (what we are calling "AI 2.0"), ARTY could be an interesting option. In this article, I would like to share what I have found to do my own analysis to see if ARTY is a potential investment.

Here is an analysis of ARTY and factors to consider

Understanding iShares Future AI & Tech ETF (ARTY)

Objective: ARTY aims to track the investment results of the Morningstar Global Artificial Intelligence Select Index. This index is composed of U.S. and non-U.S. companies that provide products and services contributing to AI technologies, including generative AI, AI data and infrastructure, AI software, and AI services.

Exposure: It provides targeted exposure to companies across the AI value chain.

Holdings: As of recent data (at time of writing on 29 May 2025 pre-market), its top holdings include:

It generally holds around 68 companies.

Expense Ratio: 0.47% (This is a moderate expense ratio for a thematic ETF. It's lower than some actively managed funds but higher than broad market index ETFs).

Assets Under Management (AUM): Around $900 million USD. This is a decent size, indicating some liquidity, but it's not a massive fund.

Performance:

Year-to-date (as of late May 2025), ARTY has shown negative returns (e.g., -2.29% YTD in one report, and -12.3% in another as of late April 2025 – note: there can be discrepancies in reported YTD performance depending on the exact date and source. Always verify with official fund data.).

The performance of ARTY vs $S&P 500(.SPX)$ as follows, where 1-year returns are positive (e.g., +8.85% as of late May 2025).

It has shown strong multi-year returns (e.g., +40.42% over 5 years).

However, some analysis indicates it has underperformed its category average and benchmark on a risk-adjusted basis over certain periods.

Reconstitution/Rebalancing: The index is reconstituted annually and rebalanced quarterly, aiming to keep pace with AI industry developments.

Why ARTY might be appealing given "AI 2.0":

Diversified AI Exposure: Instead of picking individual winners in the rapidly evolving AI space, ARTY offers a basket of companies involved in various aspects of AI (infrastructure, software, services, generative AI). This diversification helps mitigate the risk of any single company underperforming.

Exposure to Key Beneficiaries: Its top holdings clearly reflect companies that are direct beneficiaries of robust AI CAPEX, including:

Nvidia, AMD, Broadcom: Core semiconductor providers for AI infrastructure.

Arista Networks: Critical for high-speed networking within AI data centers.

Microsoft: A leading cloud hyperscaler and enterprise software provider deeply integrating AI (Copilot, Azure AI).

Palantir, Snowflake: Data management and AI platforms essential for enterprise AI adoption.

Vertiv, Super Micro Computer: Provide essential infrastructure (cooling, servers) for AI data centers.

Thematic Growth Potential: AI 2.0 represents a significant long-term growth "mega-force" that could transform numerous industries. Investing in an ETF focused on this theme allows participation in that potential.

Accessibility: For investors who want exposure to AI but don't have the time or expertise to research individual AI stocks, an ETF like ARTY provides a convenient entry point.

Factors to consider before investing in ARTY

High Volatility: The AI sector is inherently volatile due to rapid technological changes, intense competition, and high growth expectations. The ETF, despite diversification, will still experience significant price swings.

Concentration Risk (within AI): While diversified within the AI theme, it is still a concentrated bet on one sector. If the broader tech sector or AI industry faces headwinds, ARTY would likely be disproportionately affected.

Expense Ratio: While not excessively high, 0.47% means you're paying a fee regardless of performance. Over the long term, this can eat into returns.

Performance Track Record: While it has good 5-year returns, its shorter-term performance (YTD) has been negative according to some sources, and it has reportedly underperformed its category average on a risk-adjusted basis in some periods. This highlights that even with a strong theme, not all thematic ETFs outperform.

Rebalancing Strategy: The index's methodology for selecting and weighting companies (e.g., emphasizing companies with greater expected net profit increase from AI over the next five years, and preference for smaller market cap over larger, then tiered weighting) is crucial. Understand how it picks its constituents.

"AI 2.0" is a broad concept: While ARTY aims to capture various aspects of AI, the market's interpretation of "AI 2.0" may evolve. The ETF's holdings might not perfectly align with every nuance of this shift.

Valuation: Many AI stocks have seen significant price appreciation. While demand remains strong, always consider whether the current valuations of the underlying companies are sustainable.

Is it a "good time" to invest?

I think whether if it is a "Good time" to invest, we need to ask ourselves these simple questions.

Investment Horizon: If we have a long-term horizon (5+ years) and believe in the transformative power of AI 2.0, short-term fluctuations might be less concerning.

Risk Tolerance: If we have a high tolerance for volatility and are comfortable with a thematic, growth-oriented investment, then it might fit our profile.

Portfolio Diversification: ARTY should be considered a complementary investment to a well-diversified portfolio, not a primary holding. Do not put all our eggs in one AI basket.

Conviction in AI Theme: Your belief in the sustained growth and profitability of the AI ecosystem is paramount.

Technical Analysis - Exponential Moving Average (EMA) + Momentum

If we looked at the monthly timeframe as I am going for a longer horizon, this might be a good time to look at the current price, because the negative momentum is ending.

With AI and tech stocks making majority of this ETF, we could be seeing a strong performance pushing it into a positive momentum, the bulls should be coming back to attempt a monthly uptrend continuation.

So at the current price, I would be considering to enter a position.

Summary

Given the strong tailwinds from enterprise AI 2.0, ARTY offers a diversified way to gain exposure to companies driving this revolution. Its holdings are well-aligned with the themes of AI infrastructure, software, and services.

However, it is a thematic ETF in a high-growth, high-volatility sector. Before investing, research its most current performance, review its detailed holdings, understand its expense ratio, and ensure it aligns with our personal investment goals and risk tolerance. Consider it as a potential satellite holding rather than a core portfolio component.

I would be considering to load up some at the current price.

Appreciate if you could share your thoughts in the comment section whether you think ARTY is something you would consider to put into your portfolio to take advantage of the AI progressing into 2.0.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.