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Looking for AI opportunities through a disruptive lens
While a handful of large-cap stocks have reaped most of the benefits of the AI wave this year, the managers of Fidelity's Disruptive ETFs are searching across industries for opportunities.
- So far, 2023 has been the year of artificial intelligence and while prominent companies viewed as being well-positioned in AI—especially mega-cap tech stocks—have fared exceedingly well, Fidelity's Michael Kim believes some less widely known firms in other corners of the market also are beneficiaries.
- "The launch of the ChatGPT 'chatbot' in late 2022 served as a wake-up call to businesses and investors alike," says Michael Kim, co-manager of Fidelity's Disruptive ETFs. "It signaled to us all that AI's rapid growth has the potential to fundamentally change the way many traditional industries operate over the coming years."
- Having said that, Kim notes that AI was not "new" news to many of the companies held within this suite of exchange-traded funds, which invest in innovative business models, emerging industries and technologies that the portfolio management team believes have potential to disrupt or displace incumbent market leaders over time.
- In all, according to Kim, there are five industry-themed funds—Fidelity® Disruptive Technology ETF, Fidelity® Disruptive Automation ETF, Fidelity® Disruptive Finance ETF, Fidelity® Disruptive Medicine ETF and Fidelity® Disruptive Communications ETF—as well as the all-in-one Fidelity® Disruptors ETF, which provides equal-weighted exposure to each of the five thematic funds.
- "The disruptive businesses in these portfolios are exactly the types of firms that are ahead of the curve in thinking about AI and, more importantly, have been implementing it into their products and services in recent years," says Kim.
- He explains that within the combined Disruptors Fund, the top overall holdings represent the major players in AI, including the high-flying big tech companies whose stocks largely led the market rally in 2023, including Microsoft, Google parent Alphabet, Facebook and Instagram parent Meta Platforms, along with the portfolio's largest position, Nvidia, which makes the industry-leading, high-capacity chips that are considered essential for many generative AI applications.
- Still, alongside these large and recognizable firms, Kim highlights that the thematic ETFs delve deep into their respective industries, where the managers have established positions in less widely known businesses they believe have strong potential for long-term, AI-driven growth.
- Some key examples as of October 31 included Intuitive Surgical, a leading developer of robotic surgical systems, and a stock that is held in both Fidelity® Disruptive Automation ETF and Fidelity® Disruptive Medicine ETF.
- Recently, the company launched its first AI-enabled digital tool that allows surgeons to study data from their own procedures to help improve patient outcomes, contends Kim.
- Elsewhere, he cites Arista Networks, a holding in Fidelity® Disruptive Communications ETF that is a fast-growing maker of high-performance network switches and a leading solutions provider for cloud-based systems, as well as data-heavy AI applications, counting Microsoft and Meta among its notable customers.
- "We believe the Fidelity Disruptive ETFs are well-positioned amid the AI wave, which is only expected to continue to grow and develop for years to come," Kim says. "Right now, I'll admit there is a bit of a 'gold rush' mentality in the market, but we believe that Fidelity's unparalleled research capabilities will help us discern between the fool's gold and the real thing — that is, the companies that will become the standard-bearers in their respective industries."