AI Software ETFs for Long-Term Opportunity

Core Insights - The growth potential of software companies is significantly enhanced by the rise of artificial intelligence (AI), with a positive outlook despite some industry headwinds [1][2] AI Adoption and Market Growth - AI is becoming essential across various sectors, including healthcare, finance, retail, and manufacturing, leading to vast opportunities for AI software companies to develop customized solutions [3] - The global artificial intelligence as a service market is projected to grow from an estimated $16.08 billion in 2024 to $105.04 billion by 2030, reflecting a compound annual growth rate (CAGR) of 36.1% from 2025 to 2030 [5] Valuation Trends - Valuations of AI companies, such as NVIDIA, are currently high but remain lower than during the dot-com boom, with major stocks trading at a price-to-earnings (P/E) multiple of 28X compared to 40X at the peak in 2021 and 50X during the Tech Bubble of 2000 [6] - An anticipated slowdown in capital expenditures by major AI companies could potentially lower the S&P 500's valuation multiple by up to 20% [7] Demand for AI Software - AI software is sold on a subscription basis, ensuring steady demand, unlike AI hardware, which is primarily a one-time sale [8] - AI software companies are expected to generate predictable recurring revenue streams, which are generally of higher margins compared to hardware [9] Emerging Concepts - Hardware-as-a-service (HaaS) is emerging as a new business model that combines hardware, software, and services, providing businesses with innovative access options [10] Investment Vehicles - iShares Expanded Tech-Software Sector ETF (IGV) focuses on North American equities in the software industry and charges 39 basis points in fees [11][12] - SPDR S&P Software & Services ETF (XSW) represents the software sub-industry portion of the S&P Total Stock Market Index and charges 35 basis points in fees [13]