DJ Shaw

Fri, Jun 13, 2025, 4:15 PM3 min read

Global assets in artificial intelligence and big data funds surged more than sevenfold over the past five years, reaching $38.1 billion by the end of 2025's first quarter, with AI ETFs dominating the U.S. market, according to a recent Morningstar Direct report.

The artificial intelligence investment theme experienced record inflows in the first quarter, driven by Chinese investors responding to the breakthrough success of domestic AI startup DeepSeek. The Chinese company's efficient AI model demonstrated how advances could improve performance while reducing dependency on high-powered computing hardware, according to the report.

The surge reflects growing investor interest in AI technologies following the late-2022 launch of ChatGPT 3.5, which marked a pivotal moment in AI adoption and sparked institutional and retail investor enthusiasm for the sector, Morningstar reports. However, the investment landscape has been marked by high volatility, with AI funds experiencing both dramatic growth and sharp declines as market sentiment shifts.

The growth demonstrates how ETFs have become the preferred vehicle for AI investing in the U.S., contrasting with Europe, where actively managed mutual funds dominate, according to the Morningstar report.

Unlike Europe, where AI funds are typically actively managed mutual funds, AI investing in the U.S. is overwhelmingly dominated by exchange-traded funds, according to Morningstar Direct. The ETF structure appeals to investors because of its lower cost, greater transparency and enhanced trading flexibility compared with traditional actively managed vehicles.

U.S.-domiciled AI and big data fund assets grew 14-fold in just two years, reaching a record $5.5 billion by the end of May 2025. Despite this surge, the U.S. still accounts for only 15% of global AI fund assets, according to the report.

The largest AI fund in the U.S. is the Global X Artificial Intelligence & Technology ETF (AIQ), which benefits from first-mover status as the region's inaugural AI-focused ETF. The rise of actively managed ETFs has also contributed to growth, with assets in actively managed thematic AI ETFs reaching $415 million, representing nearly 10% of total U.S.-domiciled AI fund assets, according to Morningstar Direct.

The focused style of ETFs makes them suited for targeting granular exposures within the broader AI theme. The largest funds illustrate this diversity of options, according to the report.

The so-called Magnificent Seven technology stocks dominate AI ETF holdings, creating structural challenges for fund managers. NVIDIA Corp. (NVDA) appeared in almost nine out of every 10 AI funds, while all seven companies were held by more than half of AI portfolios, according to Morningstar Research.