Instead of Buying Nvidia Stock, I'm Buying This AI ETF Hand Over Fist | The Motley Fool

Climbing 467% over the past three years, Nvidia (NVDA -1.99%) stock has skyrocketed as investors have raced to gain artificial intelligence (AI) exposure. Those looking to add AI exposure to their portfolios may feel they've missed the boat on Nvidia stock. Plus, they may feel overwhelmed by the variety of other choices to consider.

But the Roundhill Generative AI & Technology ETF (CHAT -0.36%) has all those bases covered. In addition to holding a large position in Nvidia, the Roundhill Generative AI & Technology ETF provides exposure to a variety of other AI-focused companies that stand to benefit from growth in generative AI, machine learning, and large language models.

This is going to be big

It wasn't so long ago that people had little exposure to generative AI. Nowadays, it feels unavoidable.

And it's nearly a certainty that its presence in our lives is going to continue ramping higher. In fact, many pundits predict that it's going to accelerate considerably. Business intelligence firm Markets and Markets projects the generative AI market will represent about $21 billion in 2024 and soar at a 37% compound annual growth rate (CAGR) through 2030 when it will reach $137 billion.

Eager to benefit from the growth in generative AI, investors have unsurprisingly raced to Nvidia stock. A leader in graphics processing units (GPUs), Nvidia helps data centers handle the tremendous computing demands that generative AI platforms place on them. With its recent rise, however, Nvidia stock is now trading at 69 times operating cash flow (OCF), making it unappealing for those looking to avoid high valuations.

An AI ETF like no other

Branding the Roundhill Generative AI & Technology ETF as the "world's first Generative AI ETF," Roundhill Investments, the manager of the fund, cites research from Goldman Sachs that estimates AI can contribute to $7 trillion in economic growth worldwide over the next 10 years.

With 46 holdings in the fund, the Roundhill Generative AI & Technology ETF offers investors wide exposure to leading companies that will drive the advancement of generative AI. Of course, Nvidia holds a prominent position in the ETF with a 10.1% weighting, making it the largest position, so those wary of Nvidia stock on its own will still have some exposure. Rounding out the top-three positions, Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOGL) are the second- and third-largest positions, respectively.

Whereas Nvidia makes the GPUs that help support generative AI computing, Microsoft is developing AI solutions such as Copilot, an AI assistant that integrates with several Microsoft products. The company's reach in AI extends further with its multibillion-dollar investment in ChatGPT. Similarly, Google is incorporating AI into offerings such as Gemini, a generative AI chatbot. And in exploring the potential for AI in various applications, Google operates the DeepMind Lab where its exploring the development of artificial general intelligence.

While Meta Platforms (NASDAQ: META), whose Llama 3 large language model can be used to develop generative AI applications, is the fifth-largest position in the Roundhill Generative AI & Technology ETF, it's not only Magnificent Seven stocks that hold top spots; Adobe (NASDAQ: ADBE) is the fourth-largest position. A generative AI application, Adobe's Firefly can be used across various Adobe products, such as Express, Photoshop, and Illustrator.

Is the Roundhill Generative AI & Technology right for you?

There's no denying that Nvidia stock is extremely alluring right now considering the company's position as a stalwart GPU developer, but it's hardly the only generative AI game in town. Investors cognizant of this fact -- and who are looking for comprehensive exposure to the industry -- therefore will want to pay particular attention to the Roundhill Generative AI & Technology ETF, which provides a singular opportunity to gain broad exposure to generative AI. I know I am. This exchange-traded fund (ETF) has been on my watchlist for several months now, and I plan on starting a position in the coming weeks to sit in the niche of my portfolio carved out for growth investments.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Scott Levine has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Adobe, Alphabet, Goldman Sachs Group, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.