Key Takeaways
• Three-step process to choosing the right AI fund
• Energy consumption and regulation could slow growth
• Winner-takes-all a key driver in this market.
• Funds reduce stock-specific risk
Artificial intelligence has emerged as one of the most powerful and pervasive investment themes of the modern era. But investing in AI isn’t as simple as chasing the latest breakthrough or jumping into a hyped fund. Successful thematic investing requires thoughtful evaluation—of the theme itself, the investment vehicle, and the fund’s execution strategy.
To guide this process, Morningstar has developed a Thematic Fund Evaluation Framework that breaks down the investment into three key components:
• The Theme
• The Investment
• The Implementation
Let’s explore how this framework applies to artificial intelligence + big data funds.
1. Evaluating the AI Theme
The first step in assessing a thematic fund is evaluating whether the underlying theme is well-defined, investable, and durable.
Clarity and Investability
AI is clearly investable, with most funds in this space concentrating on large-cap, highly liquid companies. Our holdings frequency analysis shows a strong consensus on core holdings across AI and big data funds. This is important, as it indicates that investors generally agree on what constitutes AI exposure—typically including chip manufacturers and software firms.
Performance and Responsiveness
The Morningstar Global Artificial Intelligence + Big Data Consensus Index— a proxy for the theme— has behaved in line with expectations. It surged after the launch of ChatGPT 3.5 in late 2022 and responded to geopolitical shocks like US export restrictions on AI chips in early 2025. These reactions confirm that the theme reflects real and distinct risk/return drivers.
Durability and Growth Potential
AI has been an investable theme since at least 2015, making it one of the more mature technology narratives. Its use cases— ranging from customer service automation to drug discovery— are expanding rapidly. But the theme isn’t without obstacles.
Inhibitors to AI Growth
Two major headwinds could slow AI’s momentum:
Energy Consumption: The computing demands of AI are enormous and growing, straining existing power infrastructure and raising sustainability concerns.
Regulation: Geopolitical tensions and regulatory actions— such as export restrictions on chips or emerging AI usage laws— could limit global scalability and increase compliance costs.
2. Assessing the AI Investment Vehicle
Once the theme is validated, the next step is selecting the right vehicle. Should investors buy a thematic fund or individual stocks? While buying individual stocks can offer precision, thematic funds offer important benefits:
Diversify stock-specific risk: They reduce stock-specific risk. For instance, Tesla’s decline in early 2025 due to Elon Musk’s political activity highlights the downside of concentrated bets.
Exposure to the value chain: Funds can target high-potential segments within the theme, from AI infrastructure to applications.
Winner-take-all dynamics: In technology themes driven by scale— such as artificial intelligence and big data— we often see winner-take-all outcomes and by investing in a basket of thematic stocks, investors can ensure exposure to any potential “shooting stars.”
3. Implementation: Using Thematic Funds Wisely
Even a well-designed fund can disappoint if misused. Proper implementation is critical.
Portfolio Fit
AI and big data funds typically sit in the high-growth, high-volatility quadrant of the style box. They’re best deployed as tactical or satellite allocations—not as core holdings.
• Overlap Risks: Many AI funds have exposure to the Magnificent Seven, already widely held in most portfolios. This concentration risk should be monitored.
• Growth Bias: AI funds often exhibit high beta, amplifying broader market swings.
AI Funds Suit Buy-and-Hold Mindset
Investors frequently mistime thematic entries, buying during hype and selling during drawdowns. Given their volatility, AI funds are best approached with a long-term, buy-and-hold mindset.
Investors Should Be Valuation Aware With AI
Chasing themes without regard for valuation can lead to underperformance. Using price/fair value metrics can help pick entry point which will give longer term investors the best chance of success. For instance, investors who bought into AI funds in September 2022—when valuations were lowest—benefited from the subsequent ChatGPT-fueled rally. However, valuation alone isn’t a silver bullet; sentiment and narrative often drive short-term flows.
