First Trust Bloomberg Artificial Intelligence ETF (FAI)

What is the fund’s basic idea?

FAI is a thematic exchange-traded fund built around a single investment theme: artificial intelligence. The fund holds roughly 50–70 companies worldwide that Bloomberg’s index methodology identifies as meaningfully exposed to AI—whether they make the chips that run AI, the software that powers it, the cloud infrastructure that hosts it, or the services that apply it. This is not a traditional stock-market index tracking the largest firms in a country or sector, but rather a curated basket assembled around a specific technological trend that Bloomberg and First Trust believe will shape the next decade of corporate profitability.

How does Bloomberg identify AI companies?

Bloomberg’s AI Index, which FAI tracks, uses both quantitative and qualitative screens. The quantitative side counts revenue from AI-related products, capital spending on AI R&D, and mentions of AI in earnings calls and regulatory filings. The qualitative side involves Bloomberg’s analysts identifying companies whose business model fundamentally relies on AI or whose products are key building blocks for other firms’ AI efforts. A semiconductor company that makes processors specifically designed for AI workloads qualifies; so does a cloud provider whose infrastructure is optimized for training large language models; so does a software maker whose product is inseparable from AI. The index is rebalanced annually, and holdings change as new companies emerge or as existing firms shift focus.

What kinds of companies does FAI hold?

The fund’s portfolio spans the entire AI value chain. At the infrastructure layer: semiconductor makers like NVIDIA (whose GPUs power most AI workloads), Intel, Broadcom, and Advanced Micro Devices. Storage and data-center operators like Synopsys and Marvell. Cloud-platform companies like Amazon Web Services (through Amazon), Microsoft Azure (through Microsoft), and Google Cloud. At the software and application layer: large language-model makers like OpenAI (though as a private company, not directly held), analytics firms, and traditional software companies that have added AI features to their products. Enterprise software makers like Salesforce and ServiceNow populate the fund because they have integrated AI into their core offerings. It is a global list, so you will find companies across the US, Europe, and Asia.

The fund is heavily weighted toward the US because that is where the largest, most-traded AI companies are domiciled. A typical top holding might be NVIDIA (if it remains in the index); others might include Microsoft, Amazon, Broadcom, and Marvell. The exact allocation shifts as market cap and methodology changes.

Why own it instead of just buying NVIDIA or a broad tech fund?

FAI offers three potential advantages. First, diversification across the AI stack: rather than betting on NVIDIA or any single foundational AI company, you get exposure to chipmakers, cloud providers, software firms, and applications companies. If the AI tailwind blows across all of these, FAI spreads your bets. Second, the fund’s methodology is designed to capture emerging AI players before they become household names—companies that are small today but likely to matter as AI deployment accelerates. Third, the annual rebalancing means the fund sheds companies that fade and adds new ones that emerge, potentially capturing growth stories that a static holding of, say, the five largest tech firms would miss.

The tradeoff is that a broad large-cap index fund already holds most of FAI’s largest positions (Microsoft, Amazon, NVIDIA if they are mega-caps at the time); you are paying for the selection, rebalancing, and thematic focus rather than pure diversification.

What are the real risks?

The paramount risk is that AI’s economic benefit turns out to be much smaller than the market currently prices in. If AI tools remain marginal productivity boosters for a few industries rather than revolutionizing capitalism as many believe, the companies in FAI have been bid up on hope, and returns will disappoint. This is a concentration bet on a narrative as much as it is a bet on individual companies.

A second risk is concentration in semiconductors and mega-cap software firms. FAI cannot avoid being heavily weighted to NVIDIA, Microsoft, and other AI infrastructure giants; if these firms stumble, so does the fund. Unlike a broad market-cap-weighted index, FAI is not self-correcting in the direction of the lowest-valued stocks; it is a thematic bet that can lead a market or lag it dramatically depending on how the theme evolves.

Regulatory risk exists too. Governments are beginning to scrutinize AI’s development, safety, and use. New regulations—on data privacy, on algorithmic bias, on AI weapons—could force companies in FAI to change their business models or face restrictions, especially in Europe and Asia.

Finally, competition risk: if AI tools become commoditized (a plausible outcome given how quickly open-source alternatives are advancing), the pricing power of current AI leaders erodes.

How does the fund trade and what does it cost?

FAI trades on NYSE under its ticker and has reasonable daily liquidity. The expense ratio is in the mid-0.60% range—higher than a broad index fund but in line with other thematic ETFs. Bid-ask spreads are typically a few basis points, tight enough for most investors to enter and exit without material slippage.

Is this a long-term holding or a tactical trade?

That depends on your conviction about AI’s economic significance. If you believe artificial intelligence will drive outsized corporate profitability growth for the next 5–10 years and that FAI’s methodology will successfully identify the beneficiaries, FAI is a reasonable satellite position (not a core holding, but a meaningful allocation). If you believe AI’s impact is overstated or already priced in, FAI is expensive exposure to a crowded trade and probably best avoided.

The fund’s performance is heavily dependent on sentiment around AI and on whether the companies it holds actually monetize AI’s potential. In bull markets for technology, FAI often outpaces broad indexes; in downturns, thematic funds can underperform because they are smaller and less defensive. Most advisors would suggest FAI as a tilt, not a replacement for core index holdings.

Where to learn more

First Trust publishes a factsheet for FAI with current holdings and weights; Bloomberg maintains documentation on the AI Index’s selection criteria. A prospectus details the fund’s fees, risks, and objectives. Watching the earnings reports and product announcements of FAI’s largest holdings—especially semiconductor and cloud companies—will signal whether the AI deployment wave is accelerating or slowing. Broader technology sentiment and regulatory developments around AI also move the fund significantly.