Investors flock back to AI fund on rate cut hopes, Nvidia results

By Bansari Mayur Kamdar

(Reuters) – An exchange-traded fund tracking artificial intelligence stocks saw investors pouring money after six straight weeks of outflows, on the backdrop of strong quarterly results by chipmaker Nvidia and rising optimism that U.S. interest rates have peaked.

The Global X Robotics & Artificial Intelligence ETF received $35.5 million in net inflows in the week ending on Wednesday, its strongest since June earlier this year, according to Lipper data.

ETFs tracking AI stocks had a strong start to the year sparked by the viral success of ChatGPT, till the rally sputtered after June on fears that persistently high U.S. interest rates will hurt the valuations of technology companies.

The growing prospect of a rapid flip to rate cuts by the Federal Reserve next year also has driven investors into beaten-down Treasuries, pushing Treasury yields down and boosting rate-sensitive technology and growth stocks.

“Improved inflation data and the likelihood of rate cuts in the second half of 2024 have maintained market optimism throughout November, contributing to investor interest,” said Tejas Dessai, AVP, Research Analyst at Global X.

“In general, Generative AI is rapidly transitioning from experimentation to adoption to monetization, and we are beginning to see tangible revenue and profit opportunities emerge.”

So far this year, the Global X fund has gained 27.7% year-to-date, supported by the 233% rally in shares of its top holding Nvidia, whose graphics processing units (GPUs) dominate the market for AI.

The chipmaker’s strong results on Tuesday have also been an important factor in driving sentiment around AI ETFs, said Aniket Ullal, head of ETF data and analytics at CFRA.

Daily inflows into the fund were $17.2 million on Wednesday, hitting their highest level in more than two months after Nvidia forecast overall revenue above Wall Street targets as supply-chain issues ease.

The Global X fund, which has total net assets of $2.2 billion, has seen net inflows of $554.8 million so far this year.

(Reporting by Bansari Mayur Kamdar in Bengaluru; Editing by Shweta Agarwal)