First Trust Bloomberg Artificial Intelligence ETF (FAI): Growth Drivers, Key Risks, and Investor Outlook

by The Finance Compass · Published October 31, 2025 · Updated January 26, 2026

*Disclaimer: This article is for informational purposes only and does not constitute investment advice. Investors should conduct their own research or consult a financial advisor before making investment decisions.

Introduction

The First Trust Bloomberg Artificial Intelligence ETF (FAI) is a thematic exchange-traded fund. It is designed to provide exposure to companies involved in artificial intelligence (AI). Including hardware, software, data centers, cloud infrastructure and applications. First Trust issues it. The ETF tracks the Bloomberg Global Artificial Intelligence Select Index using index licensing. This is done with a rules-based methodology.

AI is considered a key structural theme in technology and business transformation. FAI is attractive to investors who want to take advantage of this trend in a diversified way. It remains technology-heavy. This approach is preferred rather than picking individual stocks.

Growth Potential

Structural tailwinds

The AI theme is supported by paradigm shifts: increasing data volumes, advances in algorithms (deep learning, large language models, generative AI), proliferation of cloud and edge computing, semiconductor innovation, and enterprise adoption of AI platforms.
The FAI index methodology targets companies whose revenues derive significantly from AI-related activities. According to the fund’s documentation, the universe is screened for AI exposure through “revenue assessment” and “theme assessment,” after which the ~50 best-performing securities globally are selected.
By holding a broad selection of companies contributing to the AI ecosystem (hardware, software, services), FAI enables investors to participate in multiple layers of the AI value chain. For example, the top holdings include Alphabet Inc. (~7.96 %), Broadcom Inc. (~7.85 %), Amazon.com, Inc. (~7.77 %), Microsoft Corporation (~7.77 %) and NVIDIA Corporation (~7.49 %) as of Oct 23 2025.
The thematic nature means that if the AI wave continues, companies deeply participating in it may see disproportionate growth. This creates a potential “growth-amplifier” effect for FAI versus broad market indices.
Some performance data: one source lists a YTD growth of +28.24% for FAI, though given the fund’s recent inception, long-term data is limited.

Rapid innovation and market opportunity

New AI use-cases keep emerging (e.g. generative AI, autonomous systems, enterprise AI, edge AI) and companies that are key enablers (semiconductors, infrastructure, specialized software) are in many of FAI’s holdings.
AI is still in many ways an early stage. This is relative to its long-term potential. There is room for upside if adoption accelerates further.

Global and diversified exposure (within theme)

Although many holdings are U.S.-listed large-cap tech companies, FAI does include companies from outside the U.S., and the methodology is global in scope.
For an investor who believes in AI as a global secular theme, FAI provides a single vehicle rather than having to pick many stocks.

Risks and Limitations

Thematic concentration risk

While FAI is diversified across ~50 holdings, it is still highly concentrated in one theme (AI) and one sector (Information Technology), which means it carries more risk than a broad market ETF. Indeed, its risk rating is considered “High” by some analysis.
Thematic funds can underperform if the theme falls out of favour. For example if AI hype moderates, growth slows, regulations bite, or investors rotate away from technology.

Volatility and limited track record

The fund launched on November 20, 2024. That means its historical performance window is short, which limits the predictive power of past returns.
The 52-week price range shows a low of ~US 22.92 and a high of ~US 43.84 for FAI, indicating it has already experienced significant price swings.
Because its holdings are growth-oriented, valuations may be high. If interest rates rise or growth expectations drop, the fund may suffer.

Expense ratio and structural costs

The expense ratio is 0.65 % according to sources. That is higher than many broad market ETFs, which could eat into returns over time.
The selection methodology (screening, thematic assessment) means the fund may have higher turnover or tracking risk relative to simpler index funds.

Regulatory, competitive and execution risk

The AI field is competitive and rapidly evolving. New entrants or revolutionary technologies can change market dynamics. A given company’s AI exposure may not translate into future growth.
Regulatory risks are material: antitrust actions, data/privacy laws, export controls (notably U.S.–China tech tensions) could impact key holdings.
A thematic label can attract speculative interest, which can increase stock price volatility and impose additional downside risk if sentiment changes.

Liquidity / diversification constraints

Although FAI holds ~50 stocks, the top holdings dominate (top 10 ~60 % of assets) according to a holdings breakdown. That means performance will be heavily driven by large positions, which reduces true diversification.
Some holdings may be large-cap tech names, but smaller or international names may have lower liquidity or higher risk.

Investor Outlook and Suitability

Who might FAI be suitable for?

Investors who believe strongly in the medium- to long-term secular growth potential of AI and want a “basket” approach rather than selecting individual tech stocks.
Investors who are willing to accept higher risk and volatility and are willing to accept sector and theme-specific exposure in exchange for potentially higher returns.
Portfolio allocations where a thematic tilt is warranted (e.g., alongside a broad market core). Using FAI as a satellite allocation (rather than the core) may make sense.

What to watch / tactical considerations

Valuations: Given most holdings are already large tech names, valuation risk is real. If growth disappoints, the correction may be sharper.
Rate-sensitivity: Growth stocks and themes often suffer when interest rates rise or when near-term growth expectations weaken.
Regulatory & geopolitical tailwinds/headwinds: Especially for companies exposed to China, to large–scale data usage, or to advanced semiconductors. These are politically sensitive.
Theme sustainability: AI hype is strong today, but whether all companies in the fund translate into material AI revenue may vary. Investors should keep an eye on earnings, guidance and competitive positioning of major holdings.
Rebalancing & turnover: Because the index is reconstituted quarterly (according to FAI’s documentation) there may be trading costs and turnover that impact net performance.
Broad market environment: Thematic funds tend to outperform in strong growth / risk-on markets. In defensive or risk-off conditions they may lag.

Possible scenarios

Base case: AI continues to gain traction, large-cap tech remains dominant, and FAI participates in this trend. The fund outperforms broad markets modestly.
Upside scenario: A major technological breakthrough (e.g. generative AI, autonomous systems, massive enterprise adoption) drives strong earnings growth among holdings and FAI significantly outperforms.
Downside scenario: AI growth slows, valuations get reset, regulatory headwinds mount. FAI may underperform or experience a sharper correction than diversified indices.

Portfolio role & allocation thoughts

As a high-conviction thematic bet, FAI might be allocated 5%-10% of a diversified equity portfolio (depending on risk tolerance) rather than becoming a large part of one’s portfolio.
It should ideally be complemented by a broad market core ETF (e.g. S&P 500, global equities) and perhaps other thematic exposures to avoid over-concentration.
Investors should consider a long-term horizon (5-10 years) for a theme like AI. Short-term volatility is likely.
Because the fund is U.S.-listed, European investors should also check tax/treaty implications, currency risk (USD vs EUR) and whether the fund is available in their jurisdiction.

Conclusion

FAI offers a compelling way to invest in the AI opportunity. It provides exposure to a global selection of companies tied to the AI ecosystem. These are managed via a rules-based index by a reputable provider. The growth potential is strong, supported by secular trends in computing, data, algorithms, and business transformation.

However, this opportunity comes with significant risks: thematic concentration, high valuations, regulatory uncertainty, and limited historical performance. As such, FAI is best viewed by most investors as a thematic satellite allocation rather than a core portfolio. If you believe in the long-term growth of AI and can tolerate volatility and risk, FAI may be worth considering. But if you prefer stability, income, or broadly diversified exposure, then the thematic nature may make it less suitable.

Any investment in FAI should be aligned with your time horizon. It should also match your risk tolerance and broader portfolio strategy. Do not make investments solely based on advertising.