The Nasdaq Composite (^IXIC -4.00%) index is home to almost every company listed on the Nasdaq stock exchange, many of which operate in the technology space. The highest-profile businesses in that group have largely been leaders in artificial intelligence (AI), and their stocks have produced some of the best returns over the past couple of years.

After delivering a strong gain of 28.6% last year, the index recently entered correction territory, and has now fallen 13.4% from its record high. The market jitters might be a great opportunity for investors to buy a basket of high-flying tech innovators at a discount. However, rather than picking individual names, it might be a good idea to buy an AI-focused exchange-traded fund (ETF) instead.

The iShares Future AI and Tech ETF (ARTY -4.21%) was established in 2018 under a different name, but it was reconstructed in August last year to invest exclusively in companies at the forefront of AI, including those developing data solutions, software, and infrastructure.

The ETF is down 20.6% from its recent high set just three weeks ago, and investors can buy a single share for well under $40.

Image source: Getty Images.

The world's top AI hardware and software stocks in one ETF

ETFs can hold hundreds, or even thousands of individual stocks, but the iShares Future AI and Tech ETF only holds 50. It's highly concentrated toward the AI themes I mentioned earlier, so it can experience extreme volatility during periods of uncertainty. As a result, it's important to buy it as part of a diversified portfolio of other funds and individual stocks.

With that said, the top 10 holdings in the iShares ETF are among some of the leaders in AI hardware and software:

Data source: iShares. Portfolio weightings are accurate as of March 6, 2025, and are subject to change.

Broadcom is a multifaceted AI hardware company. On the one hand, it makes custom AI accelerators (a type of data center chip) for three hyperscale customers including Alphabet. On the other hand, it makes some of the industry's best data center networking equipment, like its Tomahawk switches, which regulate how fast data travels from one point to another. Broadcom's AI revenue soared 77% year over year to $4.1 billion during its most recent quarter (which ended Feb. 2).

Nvidia makes the most popular data center chips for AI development, including its new Blackwell-based GB200 graphics processing unit (GPU). However, Broadcom's AI accelerators can be customized to suit the needs of its hyperscale customers, allowing them to design chips for specific workloads. This flexibility could become a threat to the dominance of Nvidia's chips, especially because Broadcom anticipates demand for gigantic clusters featuring 1 million accelerators by 2027.

That's why buying an ETF can be so effective -- investors don't have to worry about picking the winner and loser, because the fund is likely to do well no matter which chip maker comes out on top.

Palantir Technologies also deserves a special mention. Its stock was one of the best performers in the AI space last year with a whopping 340% gain, although it has declined sharply from its record high. The company's software products use AI to help companies and governments extract valuable insights from their data, and they experienced a surge in demand last year.

Outside of its top 10 holdings, the iShares ETF holds several other AI leaders like Amazon, Microsoft, Alphabet, Meta Platforms, C3.ai, Oracle, and more.

The iShares ETF could be a great addition to a diversified portfolio

The iShares ETF doesn't have a very long track record for investors to analyze, because it was only reconstructed on Aug. 12 last year. However, it has delivered a return of 6.1% since then, which is better than the 5.1% gain in the S&P 500 over the same period. 

The AI industry is still in its early stages, and it's possible the best is yet to come. Nvidia CEO Jensen Huang says next-generation AI reasoning models, which take additional time to "think" to render more accurate responses, will consume 100 times more computing power than previous models.

As a result, the AI semiconductor and infrastructure boom could last for years -- Meta Platforms, Alphabet, Microsoft, and Amazon plan to spend over $300 billion (combined) on hardware during 2025 alone. That spending will flow to several data center hardware companies in the iShares ETF including Nvidia, Broadcom, and Advanced Micro Devices.

Plus, those tech giants would only be investing that money if they anticipated a return, so it could also translate into significant AI cloud and software revenue in the future.

Therefore, the iShares ETF could be the ideal way to buy a basket of high-quality AI stocks for investors who are currently underexposed to this potentially revolutionary industry. By adding it to a diversified portfolio, investors could reap the benefits of supercharged long-term returns, while also protecting themselves from significant downside risks if AI fails to live up to expectations.