Investing in the future: ETF themes based around AI, robotics

Artificial intelligence and robotics are ever-expanding industries, with new research and innovations coming out every day and major companies competing to get the next and best new tech. What are the best ways to begin investing into the space?

As part of Yahoo Finance's Robotics Week: Investing in Tomorrow special, BlackRock US Head of Thematic and Active ETFs Jay Jacobs sits down with Julie Hyman and Josh Schafer to talk about how investor portfolios can gain exposure to this next generation of technology.

"We're looking to provide exposure across the value chain of pure-play artificial intelligence companies. That includes everything from generative AI model developers to artificial intelligence infrastructure, software and data, as well as artificial intelligence hardware... think semiconductors," Jacobs tells Yahoo Finance. "The idea is that as you see more adoption of artificial intelligence, more use cases that are being put to work... we would expect more adoption of artificial intelligence to ultimately lift this basket of stocks. That is the idea behind really trying to be very, very specific about what is the value chain of artificial intelligence

BlackRock manages a variety of exchange-traded funds, including the iShares Future AI & Tech ETF (ARTY) and iShares Semiconductor ETF (SOXX).

For more expert insight and the latest market action, click here to watch this full episode of Market Domination.

This post was written by Luke Carberry Mogan.

Video transcript

Driverless cars, humanoid robots, the rapid development of generative A I has big implications for the future, but some of the tech has decades to go before it's ready for real world deployment.

We're discussing where investors can play it today as part of our robotics week and joining us now to discuss is Jay Jacobs us head of thematic and active ETF at Black Rock, Jay.

It's good to see you.

You just heard us talking to a pure play robotics company, but you guys have an ETF that you've just sort of transitioned from being more robotics focused to being more sort of A I focused.

So talk to me first of all about the thinking behind that and why that made more sense to you.

Look, I think there's some expectation from investors that if they buy a thematic ETF they want that ETF to be able to evolve with the theme to provide as pure of an exposure as possible to uh the materialization of that theme.

And what we've seen since 2018 is it's really been a bit of a bifurcation between artificial intelligence and robotics A I is, is the mind the thinking behind a lot of uh you know, a lot of the software that's out there robotics is really more of the, the body, the physical world embodiment of that, whether that's delivery robots or automation, where we've seen more demand from clients and where we've really been specifically getting uh questions is how do I more specifically play the A I space?

We've seen the rise of generative A I, we've seen tremendous amounts of use cases for generative A I across sectors across industries being used today.

And so for us, we felt it was really important to transition this product to be really squarely focused on providing pure play exposure to the artificial intelligence theme.

And Jay, I'm curious there are so many different areas of A I, right?

When we say A I, there's companies that are going to use this to be more efficient and make money off that there's companies like the big one, we all know that's building the infrastructure for A I, right?

I mean, where does the ETF sort of expose itself and are investors trying to get exposed to all versions of A I or are there different sort of baskets you should be putting yourself in there?

So we're looking to provide the exposure across the value chain of pure play artificial intelligence companies that includes everything from generative A I model developers to artificial intelligence infrastructure, software and data, as well as artificial intelligence hardware, you know, think semiconductors.

The idea is that as you see more adoption of artificial intelligence, more use cases that are being put to work, whether that's uh pharmaceutical companies using A I to develop revolutionary drugs, uh legal companies using artificial intelligence to develop legal contracts, more efficient, effectively uh software companies using A I to accelerate programming, you name it.

Whatever the use case is, we would expect more adoption of artificial intelligence to ultimately lift this basket of stocks.

That is the idea behind really trying to be very uh very specific about what is the value chain of artificial intelligence and who are the pure play company across that value chain that will benefit from the materialization of the the Jay?

How do you all think about companies that say they will be A I companies?

And again, I know you can't talk about specific names, but I think of a Tesla or there's a report today that Apple is developing some sort of new table top device that'll have a robotic arm.

And I'm just curious as you look at your criteria, how much you weight sort of the company's plans or are you focusing on companies that have products today?

It's a little bit of a balance.

But ultimately, uh RDR ETF is tracking a Morningstar index and one of the benefits of that is Morningstar has an entire research platform where they're looking at companies around uh around the world that are involved in artificial intelligence and really trying to tease out what are their current revenues and Artificial Intelligence today and what do those revenues look like out into the future?

So we're really trying to capture those companies that are pure play or becoming pure play because of their investment in the Artificial intelligence space.

And, and Jay, obviously, one of the hot debates around A I right now is simple when it's gonna contribute to profitability at some of these companies, right?

Or boost their profits at a lot of these companies.

I know a lot of companies are spending on A I.

But when you're investing in something like this, I mean, what kind of time frame are people looking at here?

Is this the A I trade that we're seeing play out in the market right now?

Or is it the A I trade that might be getting a boost from A I in say 3 to 5 years?

So this, this is a structural trend and by that, we mean, this is going to play out over the course of a decade plus.

Uh so really short term market volatility, maybe that creates some entry points for investors, but it really shouldn't really change the trajectory of this theme.

But within that basket, you could see certain companies are going to be profitable sooner than others.

You know, for example, if we look at A I infrastructure, that's where the profitability is today.

Companies are spending a ton of money to buy up semiconductors, to buy data centers uh to buy uh you know, proprietary data sets, those are really benefiting right now.

Whereas with the model development that are developing things like chad G BT or clad or llama, they're going to be commercializing probably uh you know, a few years out when you start to see that being profitable.

So that's one of the benefits of investing across the value chain is you get this diversification across, uh, you know, who's making money today versus who's building for the future.

And Jay, uh, just quickly here, um, the ETF is down here to date.

So sort of ask Josh's question a different way, you know, when do you think this is gonna sort of catch fire if you will?

Uh, you know, it, I, I think we're seeing a really strong recovery right now just in the last couple of weeks.

Uh, you know, we've taken up about half of the, uh, half of the sell off of our, uh, since August 5th.

Um, this theme should really be playing out uh over the next 6 to 18 months.

Now, again, this is a, this is a decade long theme, but I think what we're going to see is the catalyst in the next 6 to 18 months is uh, uh models getting more capable, we're going to see next duration of models that are going to use more inputs than ever before.

Uh We're going to see more use cases.

So companies that are just starting to be thinking about artificial intelligence are now going to get big concrete plans about how they're going to incorporate artificial intelligence into their every day.

And I think we're going to see ultimately more competition in the space, which will be good because you'll see more companies coming in, more pressure on existing companies to innovate.

And ultimately, I think that will create a better ecosystem.

So I think the next 1618 months will be critical for uh for the artificial intelligence theme.

Jay.

Thanks a lot.

Good to see you.