A Wavering Confidence in AI Investments
The surging interest in exchange-traded funds (ETFs) that target companies in the artificial intelligence (AI) sector has seen a slowdown. This comes after a notable surge earlier this year, and the hesitancy among investors is attributed to concerns that persistent rises in U.S. interest rates might negatively impact the valuations of these companies.
The Global X Robotics & Artificial Intelligence ETF experienced net inflows of $1.8 million in September, rebounding from a significant outflow the previous month. In a parallel vein, the ROBO Global Robotics & Automation Index ETF registered outflows tallying to $14.3 million.
To offer perspective, both these funds celebrated their peak monthly net inflows for 2023 in June, accumulating $265.5 million and $29.74 million respectively, as per data from Lipper.
Aniket Ullal, the head of ETF data and analytics at CFRA Research, commented on the strong inaugural phase of 2023 for AI and robotics-centric ETFs. This vigor was particularly noticeable post the debut of Chat GPT-4, with investments surging past $1.9 billion in the initial three quarters.
However, the enthusiasm for AI stocks has taken a hit, mirroring the broader market trends. This is as a result of the Treasury yields oscillating around levels not seen in 16 years, causing investors to rethink their risk thresholds.
“The recent decline in inflows during September can be attributed to the prevailing market sentiment that we might see prolonged high interest rates, which could adversely affect tech corporations that anticipate cash flows in the distant future,” Ullal pointed out.
Investor Caution and Sector Performance
The initial euphoria that surrounded AI investments among retail investors seems to have tempered. Data from Vanda Research indicates that September witnessed the most tepid monthly retail inflows, a mere $1.96 billion, into AI-related stocks since April.
Several of these high-performing stocks underwent some profit booking after their pronounced uptrend this year, according to seasoned investors.
Yet, on the performance front, there’s a silver lining. The Global X fund boasts a commendable 21% growth this year, bolstered significantly by the semiconductor giant Nvidia, which itself has seen its stock price skyrocket over 200% since the beginning of the year.
Despite the interim apprehensions, the investor community remains sanguine about the sector’s long-term trajectory.
Mark Haefele, the chief investment officer at UBS Global Wealth Management, shared his perspective, suggesting that the recent slump might be an opportune moment for investors to enhance their stakes in leading AI enterprises.
Echoing this sentiment, Ullal from CFRA opined, “The prevailing bearish mood might see a turnaround in Q4, especially if heavyweight tech stocks, like Nvidia, which are staples in AI-themed tech ETFs, persist in showcasing robust earnings growth.”
