Wall Street had a stellar 2024 that saw artificial intelligence (AI) and tech stocks emerge as dominant forces, driving the overall tech and broader market rally. Tech stocks have been scoring big over the past couple of years, fueled by advancements in AI, especially generative AI.
The enthusiasm surrounding AI saw some of the top-performing tech funds returning more than 40% annually. Experts predict that the AI race will intensify in the near term due to growing demand in a variety of fields. Given the positive sentiment and the optimism surrounding AI, it would be ideal to invest in tech funds like Fidelity Advisor Semiconductors Fund Class I FELIX, DWS Science and Technology A KTCAX and T. Rowe Price Science & Tech PRSCX that are set to excel in 2025.
A large number of tech companies, both large and small, are pumping in millions of dollars in AI research and development. Companies that have integrated AI into their products have witnessed significant growth in recent years.
The stellar performance of tech companies is largely being fueled by NVIDIA Corporation NVDA, which has emerged as a market leader in the generative AI space, sparking a wave of interest and progress in this area. The NVIDIA stock surged 239% in 2023 and 183% last year, adding $2.2 trillion to its market cap. This made it the world’s most valuable publicly traded company.
However, NVIDIA isn’t the only company investing big in AI. Microsoft Corporation MSFT recently announced plans to invest $80 billion in AI-powered data centers for fiscal 2025 to manage AI workloads. Their fiscal year ends in June 2025. Microsoft, which has invested over $13 billion in OpenAI, provides cloud infrastructure for the startup and has embedded its AI models into products like Windows and Teams.
Besides, the likes of Apple, Inc. AAPL, Meta Platforms, Inc. META, Amazon.com, Inc. AMZN and Taiwan Semiconductor Manufacturing Company Limited TSM are other big companies that have been making significant investments in the AI space.
This surge in AI integration has seen the stock prices of these companies soar dramatically, with some witnessing gains of 300-400% in just a couple of years.
The excitement surrounding AI is here to stay. The widespread adoption of OpenAI’s ChatGPT, released in 2022, ignited a race among companies to develop their own generative AI technologies.
AI-specific chips are becoming increasingly essential as their use expands across multiple sectors, ranging from high-performance computing to everyday consumer gadgets. Additionally, memory components such as NAND flash and DRAM are experiencing a resurgence in demand, catering to more specialized computing requirements and facilitating AI-intensive tasks.
Bloomberg Intelligence forecasts that spending on generative AI will soar from $67 billion in 2023 to $1.3 trillion by 2032. Additionally, a UBS report predicts that the "Magnificent 7" U.S. tech giants will invest around $267 billion in AI applications in 2025, marking a 33.5% year-over-year increase.
Given this situation, it would be ideal to invest in tech funds with exposure to AI.
We've chosen three funds from the tech sector that are a must-buy because of their exposure to AI. These funds have given impressive 3-year and 5-year annualized returns, boast a Zacks Mutual Fund Rank #1 (Strong Buy) or 2 (Buy), offer a minimum initial investment within $5,000 and carry a low expense ratio.
Also, these funds boast an expense ratio of less than 1% and a minimum initial investment of $5,000.
The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolios without the several commission charges that are associated with stock purchases are the primary reasons why one should be parking their money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).
Fidelity Advisor Semiconductors Fund Class I fund seeks capital appreciation. FELIX invests primarily in common stocks. Fidelity Advisor Semiconductors Fund Class I normally invests at least 80% of assets in securities of companies principally engaged in the design, manufacture, or sale of electronic components; equipment vendors to electronic component manufacturers; electronic component distributors; and electronic instruments and electronic systems vendors.
As of the last filing, FELIX held significant AI stocks like NVIDIA, Taiwan Semiconductor, and Micron Technology, Inc. MU.
Fidelity Advisor Semiconductors Fund Class I fund has a track of positive total returns for over 10 years. Specifically, FELIX’s returns over the three and five-year benchmarks are 18.1% and 30.2%, respectively. FELIX has returned 44.09% in the past year. Fidelity Advisor Semiconductors Fund Class I fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.71%, which is lower than its category average of 1.01%.
To see how this fund performed compared to its category, and other #1 or 2 Ranked Mutual Funds, please click here.
DWS Science and Technology A fund seeks growth of capital. Under normal circumstances, KTCAX invests at least 80% of net assets in common stocks of U.S. companies in the technology sector.
As of the last filing, KTCAX held significant AI stocks like Apple, Meta Platforms, Microsoft, NVIDIA and Alphabet, Inc. GOOGL.
DWS Science and Technology A fund has a track of positive total returns for over 10 years. Specifically, KTCAX’s returns over the three and five-year benchmarks are 11.9% and 20.3%, respectively. KTCAX has returned 40.8% in the past one year. DWS Science and Technology A fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.87%, which is lower than its category average of 1.03%
To see how this fund performed compared to its category and other #1 or 2 Ranked Mutual Funds, please click here.
T. Rowe Price Science & Tech fund seeks to invest in long-term capital growth by investing at least 80% of net assets in common stocks of companies expected by T. Rowe Price to benefit from the development, advancement, and use of science and technology. While most of PRSCX’s assets are invested in U.S. common stocks, other securities may also be purchased, including foreign stocks, futures, and options, in keeping with the fund’s objectives.
As of the last filing, PRSCX held significant AI stocks like Apple, Meta Platforms, Microsoft, NVIDIA and Advanced Micro Devices, Inc. AMD.
T. Rowe Price Science & Tech has a track of positive total returns for over 10 years. Specifically, PRSCX returns over the three and five-year benchmarks are 11.8% and 16.5%, respectively. PRSCX has returned 40.3% in the past one year. The annual expense ratio of 0.79% is lower than the category average of 1.05%. PRSCX has a Zacks Mutual Fund Rank #2.
To see how this fund performed compared to its category, and other #1 or 2 Ranked Mutual Funds, please click here.
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