Chat GPT and More: Playing Generative AI beyond Microsoft
Scouring the globe for angles on Artificial General Intelligence
It is perhaps surprising that one of the larger ETF houses has not yet laid claim to the catchy ticker CHAT, but thematic and sector specialist ETF provider Roundhill Investments’ Roundhill Generative AI & Technology has beaten them to it, and not for the first time: its other tickers include NERD (Video games), METV (the metaverse), BYTE (digital infrastructure), MEME (meme stocks), and WEED (cannabis).
There are different opinions about how much substance exists in the excitement over generative artificial intelligence, which some companies are mentioning dozens of times in their earnings releases. Some cynics and Cassandras may try to dismiss it as “hype”, but there are plenty of seasoned investors who are taking it seriously. Veteran hedge fund manager, Paul Tudor Jones, was recently reported arguing that AI could create a productivity revolution comparable to the personal computer. Meanwhile, Goldman Sachs Global Investment Research suggests that AI could power $7 trillion of economic growth over the next decade, or over 6% of 2023 world GDP of $112 trillion.
Some stock-pickers might just use Microsoft to play AI, and that would not have been a bad decision so far in 2023. Microsoft does feature in the top ten CHAT holdings, but Roundhill is approaching AGI from broader angles: software, cloud infrastructure, semiconductors, network infrastructure and services is the sector breakdown, and there is also a “thematic relevance” breakdown of platforms, enterprise software, infrastructure and consumer software. There is no explicit mention of robotics, which often seems to sit next to AI in the names of several other ETFs.
The median market capitalization of the 29 holdings is indicated at USD 41.9 billion, which is well below US tech megacaps that average closer to USD 1 trillion. The product contains “small caps” defined as market cap below $2 billion, including speech recognition specialist, SoundHound AI, Inc, with a market cap of just under USD 600 million, which might even make it a “microcap” on some US definitions.
The US does make up nearly 70% of the book but China is the next largest country at close to 25%, where holdings include well known large caps Alibaba, Tencent and Baidu, but also voice recognition and voice product group iFLYTEK, online gaming group Kunlun Technology, and Hong Kong headquartered AI software group SenseTime Group.
(One of the more controversial AGI users, Tiktok owner ByteDance, is currently a private company so would not be eligible).
There are also holdings in Japan, Israel and Sweden’s Sinch AB, which specializes in APIs for messaging, voice, email and video.
The expense ratio of 0.75% is higher than some, and lower than other, sector specialist ETFs, though some of them are dominated by megacaps that could be accessed more cheaply through a more standard technology sector and subsector ETFs.