Some exchange-traded funds (ETFs) hold hundreds, or even thousands, of individual stocks. The iShares A.I. Innovation and Tech Active ETF (NYSEMKT: BAI) holds just 49, because it only invests in select companies that are developing and deploying artificial intelligence (AI) technologies.
The ETF launched in October 2024. It has since delivered more than twice the return of the S&P 500 stock market index, thanks to blistering gains in some of its top holdings, which include semiconductor giants like Micron Technology and Nvidia. Investors can buy a single share in the ETF for under $50, and here's why it might be a great long-term addition to any diversified portfolio.
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The semiconductor industry is at the center of the AI revolution. Specialized chips called graphics processing units (GPUs) do most of the heavy lifting in AI training and inference workloads, with support from high bandwidth memory (HBM) and several advanced networking components. As a result, all of the top five holdings in the iShares A.I. Innovation and Tech Active ETF are semiconductor stocks.
iShares ETF Portfolio Weighting
5. Taiwan Semiconductor Manufacturing
Data source: iShares. Portfolio weightings are accurate as of Aug. 27, 2026, and are subject to change.
The AI boom is creating value for more than just hardware suppliers. The iShares ETF also holds Alphabet, Microsoft, and Amazon, which are among the biggest buyers of AI GPUs and components. They each operate cloud platforms where they rent spare computing capacity to other enterprises that use it to achieve their own AI goals. Demand is skyrocketing because most businesses don't have the financial resources to build this AI infrastructure themselves.
This iShares ETF also holds cybersecurity powerhouses Palo Alto Networks and CrowdStrike, which have embedded AI into their flagship products to automate everything from threat detection to incident response. They also designed a series of new products to protect enterprises that are deploying AI, because chatbots, agents, and other applications are fraught with vulnerabilities.
Finally, the iShares A.I. Innovation and Tech Active ETF has small positions in two of the world's leading AI labs, Anthropic and OpenAI, which have developed some of the industry's best foundation models. Since both companies still trade in the private markets, investors normally wouldn't have an opportunity to buy shares, which might be reason enough to own this ETF.
It's difficult to have confidence in the track record of an ETF that has traded for less than two years. Nevertheless, the iShares A.I. Innovation and Tech Active ETF has delivered an impressive return of 76% since it launched in October 2024, while the S&P 500 is up just 31% over the same period.
It's unrealistic to expect the ETF to continue outperforming the broader market by such a wide margin, but by all accounts, the AI boom is still in the very early stages. Nvidia says the five largest hyperscalers (which include Alphabet, Microsoft, and Amazon) are on track to spend nearly $800 billion combined on AI infrastructure during 2026, followed by another $1.3 trillion in 2027. If that plays out as expected, most chip stocks will probably be trading much higher in a year from now.
Plus, Nvidia CEO Jensen Huang says both compute and tokens are now very profitable. That means hyperscalers are starting to see a return on their capital investments, and AI labs like Anthropic and OpenAI are also making money when customers deploy their AI models. This is important because it increases the chances that the AI boom will be sustainable over the long term.
Investors shouldn't bet the farm on this iShares ETF because its holdings are so highly concentrated, but it could be a great addition to a diversified portfolio that doesn't already have a high degree of exposure to AI stocks.
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Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Broadcom, CrowdStrike, Micron Technology, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Palo Alto Networks. The Motley Fool has a disclosure policy.
1 No-Brainer Artificial Intelligence (AI) ETF to Buy With $50 and Hold for the Long Term was originally published by The Motley Fool