Bubble fears in the artificial intelligence (AI) space have been doing the rounds for quite some time now. To add to the woes, a record number of global fund managers now believe that AI stocks are truly in bubble territory, according to Bank of America’s October survey, per Bloomberg, as quoted on Yahoo Finance.

Driven by enthusiasm around AI spending and productivity gains, U.S. stocks have hit multiple records this year. The tech-heavy Nasdaq 100 has been trading at a forward price-to-earnings ratio that is well above the decade average (read: Big Tech Keeps Spending Despite Rising AI Bubble Fears: ETFs in Focus). 

Mixed Views on Tech Bubble Risk

While some market participants are growing wary, strategists at Goldman Sachs argue that it is premature to fear a full-blown tech bubble. Fears of a bubble in high-flying U.S. tech stocks may be premature, at least according to Goldman Sachs strategist Peter Oppenheimer, who believes that strong earnings, not speculation, are aiding the current rally, per Bloomberg, as quoted on Yahoo Finance.

Francesco Sandrini — multi-asset head and Italy CIO at Amundi, Europe’s largest asset manager — sees irrational excitement across Wall Street, related to risky AI investments. However, he still believes that the AI rally still has legs and returns can be reaped from selective bets that are reasonably valued, per a Reuters article, as quoted on Yahoo Finance.

Dot-Com Era Insights for Today’s Market

Some investors plan to trim exposure to Wall Street’s Magnificent Seven after Nvidia’s massive rally in the last two years, while maintaining diversified exposure to the broader AI ecosystem, the Reuters article went on to highlight.

Per the same Reuters article, research by economists Markus Brunnermeier and Stefan Nagel found that hedge funds mostly did not short the dot-com bubble. Instead, they smartly rotated between tech industries, beating the market by about 4.5% per quarter from 1998 to 2000, and escaped the worst of the dotcom crash.

Which Tech ETF Areas to Tap Now

Amundi’s Sandrini looks for “the highest growth opportunities that the market has yet to spot,” citing software firms, robotics and Asian tech stocks as areas with room to run, per the same Reuters article, as quoted on Yahoo Finance.

Against this backdrop, below we highlight a few tech ETF areas that can be tapped now if you fear an immediate AI bubble burst. Each of these ETFs trades at a lower P/E multiple than that of Technology Select Sector SPDR ETF (XLK Quick QuoteXLK - Free Report) (i.e., 44.05X).

Software – SPDR S&P Software & Services ETF (XSW) – Zacks Rank #1 (Strong Buy)

The fast and vast adoption of AI in every sector opens up immense opportunities for AI software companies to develop customized solutions. Unlike AI hardware, which is mainly a one-time sale (as quoted on Forbes), meaning demand would wane at some point in time, AI software is sold on a subscription basis. This indicates that AI software will always remain in demand. The ETF (XSW Quick QuoteXSW - Free Report)  has a P/E of 39.45, per WSJ.

China Technology – Invesco China Technology ETF (CQQQ)

China has been investing heavily in AI and the overall tech sector to create a brand for itself in the global market. Meanwhile, the Chinese economy has been slowing, which may compel the central bank to ease the monetary policy. If China cuts rates ahead, high-growth tech stocks and ETFs may gain. The ETF (CQQQ Quick QuoteCQQQ - Free Report)  trades at a P/E multiple of 37.78, per WSJ.

Robotics – Global X Robotics & Artificial Intelligence ETF (BOTZ Quick QuoteBOTZ - Free Report)

AI stocks boost robotics companies as surging demand for automation drives investment in hardware, sensors and machine-learning integration. Hardware companies supply the tools that are necessary for real-world AI applications. The ETF (BOTZ Quick QuoteBOTZ - Free Report)  has a P/E of 38.81, per WSJ.