Artificial Intelligence, climate policy uncertainty, and renewable energy transition: nonlinear evidence on sustainable energy resilience

In November 2022, the artificial intelligence (AI) boom kicked off with the launch of OpenAI's ChatGPT application, which quickly attracted 100 million users in just a few months. This surge led to significant gains in various sectors such as semiconductors, cloud computing, and software, propelling the broader market upward. However, as investors question the long-term viability of AI infrastructure spending, volatility has increased across the board.

Many AI-related stocks, including some of the most respected players, are experiencing declines. To mitigate this risk, some investors may want to consider investing in an exchange-traded fund (ETF) such as the iShares Future AI and Tech ETF (ARTY). This particular ETF offers exposure to 50 leading AI stocks, thereby eliminating the need for individual stock selection.

The ETF covers the entire AI value chain, including infrastructure, software, and services. Among its key holdings are Taiwan Semiconductor Manufacturing, Broadcom, Micron Technology, and Space Exploration Technologies. Despite being restructured in August 2024 to solely focus on AI, the iShares ETF has delivered an impressive 130% return since the restructuring, outperforming the S&P 500, which has only returned 44% over the same period.

However, as concerns grow about the sustainability of the AI spending boom, there is a risk that the iShares ETF could face a significant correction. Also, the ETF's expense ratio of 0.47% is notably higher than that of a low-cost passive index fund, such as Vanguard's, which can cost as little as 0.03% per year. Given these factors, while the iShares Future AI and Tech ETF could be a suitable addition to a diversified portfolio lacking AI exposure, it should not be the sole investment for any individual.