AI-Driven 2023 Stock Market Rally: Insights on Nvidia, AMD, and WTAI InvestmentGeneral Discussion 3 replies 0 likes 0 votes 103 views
Navigating the 2023 stock market rally has been quite the adventure, primarily fueled by the unstoppable rise of artificial intelligence (AI). A couple of standout players, Nvidia (NVDA) and AMD (AMD), have been stealing the show on the S&P 500 performance chart so far this year. Even with a slight dip in semiconductor chip stocks recently – the backbone of the AI industry – the momentum within the sector remains robust, though it has experienced a minor setback in recent times. If you're wondering about the best approach to capitalize on this trend, I've got some insights to share.
Allow me to introduce you to a promising option: The WisdomTree Artificial Intelligence and Innovation Fund (BATS:WTAI). I'm particularly enthusiastic about its structure and cost-effectiveness, making it an appealing investment choice. Furthermore, I'll outline a strategic approach for those who prefer a shorter-term investment horizon.
Now, let's delve into the current situation and why we might be facing a correction in the AI sector. As Apple's market cap soared to an astonishing $3 trillion, its stock nearly touched the $200 per share mark. However, since that peak on July 19th at $198.23, the shares have retreated by around 10%, officially marking the territory of a correction. This pullback hasn't spared other industry giants either.
The AI stocks experienced an upward swing from November 2022 through this past July, largely driven by the belief that productivity enhancements would swiftly lead to a surge in profits. And guess what? I still believe it will happen – and I'm not alone. The recent BofA Global Fund Manager Survey indicates a growing sense of optimism regarding the positive impact of AI on bottom-line figures. The upcoming update, due in a few days, should shed more light on this evolving trend.
Remarkably, company executives are increasingly bullish on AI. Across the board, both large and small enterprises are keen to mention "AI" during their quarterly conference calls. With several prominent chip stocks gearing up to reveal their Q2 results in the next few weeks – including NVDA on August 23rd – we can anticipate more AI-focused discussions making their way into the limelight.
Evidently, AI is more than just a buzzword; it's shaping up to be a pivotal element of business strategies. While BofA ranks the Global X Artificial Intelligence & Technology ETF (AIQ) as the top fund, I contend that WTAI deserves a place at the top due to its affordability and respectable tradeability.
Let's dive into the specifics of WTAI. This ETF seeks to mirror the price and yield performance of the WisdomTree Artificial Intelligence & Innovation Index. The index targets companies that are deeply involved in AI and innovation. By investing in WTAI, you gain exposure to firms at the forefront of AI technology development and deployment. It's a strategic move that can complement growth-focused portfolios, offering diversified access to high-growth AI enterprises across various sectors.
One notable feature of WTAI is its modified equal-weight structure, ensuring no single position exceeds 2.54% of the total holdings. This sets it apart from other AI exchange-traded products, where you might encounter an overbearing influence of a single company. Additionally, WTAI boasts some industry diversity, with representation in AI Software, Semiconductors, Innovation, and "Other Hardware." While only 27% of the portfolio falls under the Semiconductors category, a substantial 80% is allocated to the Information Technology sector, and as of June 30, 2023, a significant 74% of the fund resides within the US market.
In terms of cost-effectiveness, WTAI impresses with a weighted average expense ratio lower than many peers, standing at just 0.45%. Its dividend yield may be modest at 0.2% annually, but it compensates with a solid liquidity profile. Although the 30-day average volume hovers below 200,000 shares as of August 11, 2023, the 30-day median bid/ask spread is a mere five basis points, ensuring healthy liquidity. Yes, it might not be the cheapest ETF on the valuation front, trading at around 60 times next year's projected operating earnings per share, but that's par for the course for growth-focused funds. With a price-to-sales ratio of 4.3 and a net buyback yield of 0.8%, it aligns well with the characteristics of a growth-oriented investment.
Time to get technical. While I hold a positive view of WTAI's construction and cost, the chart has thrown a few curveballs our way. Take a look at the graph below; you'll notice that WTAI is at a crucial support point around the $18 mark. A bearish breakdown from here could signal a test of the next support range between $15.70 and $15.90.
What's potentially more concerning is the volume trend. While higher volume entering into this relatively new ETF is ideal, the $18 to $20 range has seen substantial trading activity. This suggests that investors who jumped onto the AI bandwagon earlier in the summer might be considering an exit as their investments return to break-even levels. Behavioral economics remind us that people often anchor their decisions to their purchase price.
Moreover, I spotted a negative RSI momentum divergence last month when the fund hit its peak for 2023. As expected, this led to a downward move of over 10% by the close of last Friday. On the bright side, the long-term 200-day moving average is on the rise, indicating that the bulls are still leading the charge. However, they're facing a stern test. Looking ahead, resistance is likely around the $20.50 to $20.80 range, suggesting that a cautious, tactical approach with WTAI might be wise for now.
While the support level is currently a key consideration, snapping up WTAI around the $16 mark during a dip could potentially yield handsome returns in the long run.
In a nutshell, I'm giving WTAI a buy recommendation, though waiting for a further 10% dip could offer a more risk-controlled strategy for potential investors. As the AI boom continues to reshape the market landscape, WTAI could be your ticket to capturing some of the promising growth opportunities in this dynamic sector.