GINN - Look at free cash flow when evaluating AI companies - Citi

2023-07-24 09:36:58 ET

Assessing the artificial intelligence sector in the wake of a rally seen earlier this year, Citi said Monday that investors should focus on free cash flow as they review potential AI investments.

“We reiterate our positive medium-term outlook on the artificial intelligence theme even after its continued rally. We pay particular attention to free cash flow," Citi research outlined in a recent investor note. "Many profitable AI stocks are already cash generating machines. Incremental benefits of developments like generative AI should accentuate this characteristic."

The financial institution went on to add: "Looking ahead, Street expectations are for a notable acceleration in EPS growth. Both the NASDAQ-100 and US AI basket are expected to easily outpace broader market growth."

Citi also highlighted that U.S. based AI earnings are anticipated to grow roughly by +17% for the next two years.

Market participants who would like further analysis on the AI space may look towards exchange traded funds that offer exposure to the broader sector. Listed below are some of Wall Street’s popular artificial intelligence-based ETFs:

• GX Artificial Intelligence & Tech ETF ( NASDAQ: AIQ )
• GX Robotics & Artificial Intelligence ETF ( NASDAQ: BOTZ )
• ALPS Disruptive Technologies ETF ( DTEC )
• Goldman Sachs Innovate Equity ETF ( GINN )
• iShares Robotics and Artificial Intelligence Multisector ETF ( NYSEARCA: IRBO )
• Artificial Intelligence and Robotics ETF ( NASDAQ: ROBT )
• iShares U.S. Tech Breakthrough Multisector ETF ( TECB )
• iShares Exponential Technologies ETF ( XT )
• Robo Global Artificial Intelligence ETF ( THNQ )
• Roundhill Generative AI & Technology ETF ( CHAT ) ( Recently launched on May 18 ).

More on Artificial Intelligence:

• BlackRock says AI has room to run but investors should remain selective
• Global X sees reasons for optimism in H2, cites AI as a growth engine
• BofA takes neutral view on AI ETFs, weighing growth potential vs. near-term headwinds
• UBS believes the AI trend is not a bubble but says investors should remain selective

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