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Diversify, Don't Concentrate: Why AI ETFs Beat Single-Stock Bets

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  Published in Stocks and Investing on Wednesday, December 3rd 2025 at 13:58 GMT by The Motley Fool

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Investing in Artificial Intelligence Without Taking a Direct Bet on Individual Stocks

Artificial intelligence (AI) has moved from a niche technology to a mainstream engine of economic growth, touching everything from cloud computing and autonomous vehicles to healthcare diagnostics and finance. For investors, the question is no longer “Should I invest in AI?” but “How do I capture the upside of this revolution while keeping risk in check?” A recent analysis on The Motley Fool tackles exactly that dilemma, offering a strategy that lets you ride the AI wave without putting all your eggs in a single basket.

1. The Problem With a Pure Stock Pick

Many of us have seen the headlines about AI behemoths such as Nvidia, Microsoft, and Alphabet. A tempting shortcut is to pile into a handful of these names, hoping that the AI boom will reward your concentrated play. The reality, however, is that a handful of stocks can expose you to idiosyncratic risks—product failures, regulatory setbacks, or even sudden shifts in consumer sentiment. Diversification across the AI ecosystem can dampen that risk while still providing meaningful exposure.

2. The Solution: AI‑Focused ETFs and Index Funds

The article advocates for a multi‑layered approach that leverages exchange‑traded funds (ETFs) and index funds focused on AI and robotics. These vehicles bundle together dozens, sometimes hundreds, of companies that are directly involved in AI development, infrastructure, or application. By buying a single fund, investors gain broad market exposure without the hassle of individual research.

a. Broad‑Based AI ETFs

• Global X Robotics & Artificial Intelligence ETF (BOTZ) – Tracks the performance of companies involved in the design, development, and manufacturing of robotics and AI. It is heavily weighted toward hardware players like NVIDIA and key software providers such as Alphabet.

• iShares Robotics and Artificial Intelligence Multisector ETF (IRBO) – Offers a slightly broader universe, covering sectors ranging from consumer electronics to industrial automation. It has a diversified allocation that mitigates concentration risk.

• ARQ (ARQR) – The ARK Autonomous Technology & Robotics ETF – Focuses on autonomous vehicles, drones, and related AI applications. While it has a higher concentration in a specific subset of the AI industry, its thematic focus can produce outsized gains during rapid adoption.

b. AI‑Related Technology ETFs

• QQQ (Invesco QQQ Trust) – While not solely an AI fund, QQQ’s heavy weighting in large tech names gives indirect exposure to AI innovation. Many of the top holdings, including Apple, Amazon, and Microsoft, are heavily invested in AI research and services.

• Vanguard Information Technology ETF (VGT) – Offers a broader tech exposure, with a sizeable allocation to AI‑related companies. It’s a good way to complement a dedicated AI ETF with a diversified tech mix.

c. The Power of Indexing

Beyond the thematic funds, the article also highlights the value of index investing for AI. By tracking a broad tech index that naturally includes AI firms, investors can capture upside while avoiding the pitfalls of a concentrated play. Vanguard’s Total Stock Market Index Fund (VTSAX) is an example—its composition gradually incorporates emerging AI leaders as they grow.

3. Tactical Layering: When to Add Direct Stock Exposure

Even a diversified ETF strategy doesn’t fully replace the potential upside of a selective stock pick. The article suggests a “core‑satellite” approach:

1. Core – Allocate 60–70% of the portfolio to the broad AI ETF (e.g., BOTZ or IRBO).
2. Satellite – Dedicate 10–20% to high‑conviction stock picks. The article recommends focusing on companies with solid fundamentals, strong balance sheets, and clear AI roadmaps. Candidates include Nvidia (GPU powerhouse), Microsoft (cloud and AI services), Alphabet (search + AI research), and advanced semiconductor firms such as ASML.
3. Cash Cushion – Keep 10–20% in cash or liquid instruments to seize opportunities when the market turns or to rebalance.

The key is to keep the satellite portion small enough to avoid significant idiosyncratic risk but large enough to benefit from company‑specific growth catalysts.

4. Managing Risk: The AI Wildcard

AI is still a developing field, and regulatory uncertainty, technological breakthroughs, or competitive disruptions can reshape the landscape overnight. The article underscores the importance of:

• Regular Rebalancing – ETFs can drift from their benchmarks; rebalancing every 6–12 months keeps your allocation on target.
• Position Limits – If you’re invested in a handful of large AI names, cap each position at no more than 5–7% of the total portfolio to avoid overexposure.
• Sector Tilt – Avoid placing too much weight in one sub‑sector, such as chipmakers or cloud providers, because a single technology or policy change could hurt the entire group.

5. Long‑Term Horizon: Why AI Is A “Growth” Asset

The article frames AI as a long‑term growth story. Unlike short‑term “hot” stocks that can flip in a few months, AI’s benefits accrue over years as automation permeates industries, productivity multiplies, and new markets emerge. A disciplined, diversified approach that blends ETFs, index funds, and selective stocks can capture this momentum while smoothing volatility.

6. Bottom‑Line Takeaway

• Diversify first – Use broad AI ETFs or tech‑index funds to gain exposure across the entire industry.
• Add conviction selectively – Keep a small satellite allocation for high‑potential companies.
• Control risk – Maintain cash reserves, rebalance regularly, and avoid overconcentration.
• Stay the course – AI is a long‑term driver of value; a patient, balanced strategy will reward you over time.

In short, you don’t need to place all your bets on a single AI juggernaut. By combining diversified ETFs with a measured amount of direct stock picks, you can ride the AI wave without taking on the volatility that comes with concentrated positions. The Fool article encourages a disciplined, data‑driven approach, ensuring that investors are prepared for both the opportunities and the uncertainties that the AI revolution brings.