Uncovering What’s Hiding in the Artificial Intelligence ETF BOTZ (Opportunities and Stocks to Avoid)

When you think a certain sector could be profitable but just want to dip your toes into the water — like with electric vehicles or biotech or almost any emerging industry you can think of — one way to invest is through an ETF.

But investing in an assortment of companies in a particular sector through an ETF comes with its downsides. There may be some stellar stocks within it, but there may also be some laggards that you would want nothing to do with.

That’s why it’s important to inspect an ETF’s holdings to determine its overall health.

Today, we’re going to do just that by analyzing the Global Robotics and Artificial Intelligence ETF (BOTZ) with our tools. With buzz building around the artificial intelligence (AI) sector, we wanted to see how this fund’s holdings hold up in terms of health and risk — and whether there are any standouts worth owning individually.

Getting to Know the BOTZ ETF

The majority of BOTZ holdings are in our Red Zone, meaning that they are considered stocks to stay away from. (Note that the ETF also holds currency and other investments that may not have a Health Indicator.)

You can see in the image below the investments that are in the Red Zone and Yellow Zone, along with the risk factor associated with investing in them through our Volatility Quotient (VQ):

Having that information serves as a time-saver, as you can know at a glance which investments to stay clear of or take a more cautious approach with, depending on your outlook as an investor.

What also serves as a time-saver is seeing which companies are in the Green Zone and are considered “buys.”

Keep in mind, though, that all of the stocks in the image above are classified by our VQ as high-risk or sky-high-risk investments, which is why it’s always important to know your risk tolerance.

For a quick breakdown, PRCT, HLX, MAXR-T, AI, PATH, and TSP are sky-high-risk investments; DT and NVDA are high-risk investments.

Of these Green Zone stocks, the one that catches our eye with one of the lowest VQs and the most recently triggered Entry Signal is NVDA.

A Standout Stock

Nvidia Corp. (NVDA) was founded in 1993 with the vision to bring 3D graphics to the gaming market.

Fast forward to today and it has fulfilled and surpassed that vision, creating graphics processing units (GPUs) to power cryptocurrency mining and gaming, as well as chip systems for robotics, vehicles, and other tools.

Nvidia currently sells a $10,000 A100 chip, and it also sells the DGX A100, which is eight A100 GPUs working together.

The DGX A100 has a suggested price of $200,000, and research firm New Street Research estimates that the ChatGPT model inside the search engine Bing (owned by Microsoft Corp. [MSFT]) could need eight GPUs to answer a question in less than a second.

In order for Bing to provide this service to all of its users, it would require more than 20,000 8-GPU servers, which could cost Microsoft $4 billion.

The investment bank Citigroup projects that ChatGPT usage alone could bring Nvidia $3 billion to $11 billion in sales by the end of 2023.

The Takeaway

The BOTZ ETF may give you broader exposure to the AI sector than you would gain by investing in an individual stock, but as our tools have revealed, it may be exposure that you’d rather avoid. With the majority of its holdings wallowing in the unhealthy Red Zone, BOTZ doesn’t look like an attractive investment at this time.

But if you’re an investor who’s prepared to weather a little extra volatility for larger potential payoffs, the ETF’s Green Zone stocks — and particularly NVDA — may be worth considering.

Take care,

Team TradeSmith