How AGIX’s Low Nasdaq 100 Overlap Unlocked AI-Driven Outperformance
Since inception, our focus on artificial intelligence (AI) adoption and application has yielded significant outperformance for the KraneShares Artificial Intelligence & Technology ETF (Ticker: AGIX). Starting from AGIX's inception date (July 17, 2024), AGIX has delivered a 18.07% total return compared to the Nasdaq 100 Index at 8.34% and significantly outperformed the SOX Semiconductor Index, which saw a -7.6% decline.1 This 25.67% outperformance against semiconductors validates our thesis that the AI opportunity extends well beyond chip manufacturers to the broader AI ecosystem.1
Additionally, after a volatile period of tariff noise, AGIX has risen 22.59% over the last month.1
The performance data quoted represents past performance. Past performance does not guarantee future results. The investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed or sold, may be worth more or less than the original cost. Current performance may be lower or higher than the performance quoted. For performance data current to the last month-end, please visit https://kraneshares.com/agix.
“Deploying frontier technologies and applying them rapidly is the greatest certainty amid today’s uncertainties.” If we were to summarize this round of volatility, that would be our key takeaway. During the rebound, companies such as Duolingo (DUOL), Palantir (PLTR), SAP, and ServiceNow, which have integrated AI into frontline operations and begun generating concrete revenue from AI, played a pivotal role.
Earlier this month, we carried out the second 2025 rebalancing of the AGIX Index (Solactive Etna Artificial General Intelligence Index), adding AppLovin, a pioneer of AI and AdTech convergence, while keeping the weights of Infrastructure (40%), Applications (35%), and Semiconductors (25%) unchanged.
AGIX Growth Recap: AI Alpha Derives from the Certainty of Technological Progress
Over the past month, AGIX rose by 22.59%, outperforming the Nasdaq 100 Index’s gain of 13.26%. Among the 45 companies included in AGIX, 36 (78%) outpaced the Nasdaq 100, and 10 companies delivered gains above 35%.1
From a year-to-date perspective, AGIX’s performance has been primarily driven by those early AI beneficiaries whose smaller market caps excluded them from major tech indices.
As we are almost at the halfway mark of the year, we observed that AGIX’s outperformance against broad technology benchmarks stems not from simply holding large-cap names but from capturing emerging AI leaders overlooked by traditional indices. This pattern remains evident today.
External macro uncertainties have not diminished the inevitability of AI’s mass adoption. On the contrary, cost pressures from the broader environment are spurring companies to seek new solutions and upgrade their business models. ServiceNow, for example, noted that tariffs have heavily burdened automotive and retail sectors, prompting these enterprises to leverage AI for “business transformation” to maximize cost savings and efficiency gains, a trend increasingly confirmed by quarterly results across the tech industry.
By examining both year-to-date returns and holding-weight distribution, it becomes clear that the top YTD performers are not the “Magnificent Seven” but rather mid-cap companies (note: AGIX’s methodology incorporates market capitalization into its weights, so weights also reflect size), concentrated in AI applications and infrastructure.
Is There An AI Hype?
“Overvaluation” is a frequent critique of growth stocks, especially amid AI hype, where high-growth names tend to trade at elevated multiples. Does AGIX suffer from this “excessive share price” issue? We compared AGIX’s valuation against that of the Nasdaq 100:
On a price-to-book basis, AGIX’s average valuation is on par with the Nasdaq 100. Given AGIX’s high-growth holdings, a PEG-ratio comparison shows AGIX trading over 10% below the Nasdaq 100. This indicates that while AGIX’s AI companies have commanded rich valuations relative to other tech stocks in recent years, their projected business and earnings growth justify-even exceed-those levels. In other words, AGIX captures “high-growth yet reasonably valued” AI stocks.
2025 Q1 Earnings Season: AI Skepticism Dissipates
As earnings season begins, one thing is abundantly clear: AI is delivering tangible value at the application level. AI’s role as a new technological force reshaping corporate cost structures and even business models is no longer a speculative investment thesis but a major trend already in motion. Below are excerpts of AI-related remarks from AGIX-covered companies during this earnings season:**
ServiceNow (Ticker: NOW)*
ServiceNow delivered its strongest quarter ever for net new annual contract value (ACV), surpassing its ACV target for Q1 2025. Remaining performance obligations (RPO) grew 25.5% year-over-year, and the number of customers with more than $20 million in annual ACV rose nearly 40%.
The company’s AI product portfolio is comprehensive, spanning key enterprise workflows. It has launched AI agents across Customer Relationship Management (CRM), Human Resources (HR), Information Technology (IT), and other domains, and customers can build custom agents via AI Agent Studio.
During this quarter’s earnings calls, ServiceNow introduced the “Business Transformation” value proposition. The company argues that enterprise software needs have long moved beyond mere “digital transformation.” Faced with cost pressures from macro factors like tariffs, deploying AI to cut costs and boost efficiency represents the clearest path to Return on Investment (ROI).
Under the “Business Transformation” banner, ServiceNow rolled out industry-specific AI agents. Its telecom-focused agent streamlines labor-intensive workflows in customer service and network operations. To address U.S. federal agencies’ efficiency demands, the company unveiled its Government Transformation Suite and pledged to accelerate delivery of agentic AI capabilities to the public sector-enhancing transparency, speeding payback, and improving operational outcomes.
Duolingo (Ticker: DUOL)*
Within the AI potential framework, Duolingo’s AI purity (AI readiness) and AI potential are both very high, making it one of the companies with the smoothest AI monetization progress.
The company’s core AI product, Duolingo Max, has created a new commercial growth driver: AI features like Video Call have noticeably boosted user engagement and conversion to Max subscriptions. By the end of Q1, Duolingo Max subscribers accounted for about 7% of total subscriptions. Paid subscribers grew to 10.3 million, a 40% year-over-year increase. As its user base expanded, total revenue rose 38% year-over-year to $230.7 million.
Duolingo’s AI-driven “cost reduction and efficiency gains” are also impressive. Over the past year, Duolingo added 148 new courses developed entirely with AI-content that would have taken 12 years to create under manual development.
Palantir (Ticker: PLTR)*
In a highly challenging macro environment, Palantir’s performance and the upward revision of its annual guidance underscore both enterprises’ urgent need to operationalize AI and PLTR’s unique technological advantages and competitive positioning.
Performance-wise, according to its Q1 2025 earnings report, U.S. commercial revenue grew 71% year-over-year, while U.S. government revenue rose 45% year-over-year. Total revenue reached $883.9 million, up 39.3% year-over-year. Management attributed this strong growth to sustained demand for its Artificial Intelligence Platform (AIP) in both enterprise and defense settings. Beyond government, industries such as healthcare and financial services are also driving robust AI demand; these sectors feature larger, faster deal cycles that will deliver clear short-term growth for PLTR.
During its earnings call, Palantir highlighted successful adoption by clients like Walgreens and AIG Insurance as concrete evidence of this momentum. Foundry and AIP enabled Walgreens to deploy an AI-driven end-to-end workflow across 4,000 stores in eight months, automating what would otherwise require 384 billion manual decisions per day. CEO Alex Karp also noted that rising budget scrutiny and efficiency mandates within the U.S. government could open new market opportunities for Palantir.
SAP (Ticker: SAP)*
SAP, Europe’s largest tech company by market cap, delivered Q1 results that substantially beat analyst expectations, sending its stock up 11% in a single day-the biggest one-day gain in six years-and reinforcing SAP’s leadership among European tech names. SAP’s counter-trend growth reflects both geopolitical “de-globalization” in software and the deep embedding of AI into its operational backbone.
SAP’s approach integrates AI directly into core business processes rather than offering it as an add-on. Its AI assistant, Joule, incorporates 1,300 skills across supply chain, finance, HR, and other functions, automating up to 80% of routine user tasks and serving 34,000 cloud customers. In Q1 2025, roughly half of SAP’s cloud order agreements included AI use cases.
For example, a leading global airline used SAP’s AI-powered HR management tools to boost its high-performer retention rate to 98%. SAP also announced major automotive deals with Hyundai, Kia, and Mazda, and earlier this year launched SAP Business Data Cloud to enhance data integration and governance, positioning itself as a key player in using analytics and AI to optimize business processes.
Tempus AI Inc. (Ticker: TEM)*
In the first quarter of 2025, Tempus AI Inc. demonstrated strong growth momentum and strategic progress in the AI-driven precision medicine field. Financially, Tempus AI’s quarterly revenue grew 75.4% year-over-year to $255.7 million. Within that, the Genomics division stood out with an 89% year-over-year increase, reaching $193.8 million. The company’s robust revenue growth and advances in key business areas show that its AI strategy is effectively translating into commercial outcomes.
On the strategic partnership front, Tempus AI has teamed up with major pharmaceutical company AstraZeneca and pathology-focused AI firm Pathos. These collaborations are vital for driving AI applications in drug discovery, clinical trials, and personalized treatment planning, helping to accelerate innovation and expand Tempus AI’s impact within the precision medicine ecosystem.
Applovin (Ticker: APP)*
Applovin, newly added to the AGIX Index this rebalancing, exemplifies the convergence of AI and AdTech. In Q1 2025, its ad business generated $1.16 billion in revenue and $943 million in adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA), achieving an 81% adjusted EBITDA margin. Management credited the growth to further refinements of its machine learning models, noting that since the rollout of its Axon 2.0 engine, ad spend on the Applovin platform has roughly quadrupled:
“Ad spend on the platform has roughly quadrupled since we rolled out Axon 2.0. That happens because you get better Return on Ad Spend (ROAS) and better scale as the model evolves and improves. We further refined our machine learning models to help mobile gaming companies scale their campaigns.”
Next, Applovin will introduce an ad-serving agent that automatically sets targets and budgets, uploads creatives, and delivers results for advertisers.
Holdings are subject to change.
High short-term performance for the fund is unusual, and investors should not expect such performance to be continued over the long term.
For AGIX top 10 holdings, risks, and other fund information, please click https://kraneshares.com/agix.
Citations:
- Data from Bloomberg as of 5/14/2025.
*All earnings information and data mentioned under "2025 Q1 Earnings Season: AI Skepticism Dissipates," from Bloomberg as of 5/14/2025.
Definitions:
EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization): A financial metric that measures a company's profitability from its core operations by excluding the effects of financing, tax, and non-cash accounting decisions.
EBITDA Margin: A profitability ratio that measures a company’s earnings before interest, taxes, depreciation, and amortization as a percentage of its total revenue.
ROAS (Return on Ad Spend): A key performance indicator that measures the revenue generated for every dollar spent on advertising, helping assess the effectiveness and profitability of advertising campaigns.
ACV (Annual Contract Value): The monetary value of a customer’s annual subscription contract with a SaaS business, representing the expected yearly revenue from that customer.
ROI (Return on Investment): A performance measure that evaluates the efficiency or profitability of an investment by dividing the net profit by the investment’s cost, typically expressed as a percentage.
PEG Ratio (Price/earnings-to-growth ratio): A stock valuation metric that compares a company's price-to-earnings (P/E) ratio to its expected earnings growth rate, providing insight into whether a stock is over- or undervalued relative to its growth prospects.
Price to Book Ratio (P/B Ratio): A financial metric that compares a company's current market value to its book value, helping investors assess whether a stock is undervalued or overvalued relative to its net assets.
Performance Contribution: An evaluation approach that systematically assesses how much a specific intervention, program, or factor has contributed to observed outcomes or impacts, often by analyzing causal relationships and ruling out alternative explanations.
Remaining Performance Obligations (RPO): A financial metric that represents the total value of contracted products or services a company is obligated to deliver to its customers in the future, for which revenue has not yet been recognized. RPO is a forward-looking indicator, providing visibility into a company’s future revenue pipeline based on legally binding customer contracts.
Revenue: The total amount of income generated by a business from its primary activities, such as the sale of goods or services, before any expenses are deducted.
Ad Spend: The total amount of money a company allocates and spends on advertising campaigns across various channels within a specific period.
Index Definitions:
Nasdaq 100 Index: The Nasdaq-100 is a stock market index made up of equity securities issued by 100 of the largest non-financial companies listed on the Nasdaq stock exchange. It is a modified capitalization-weighted index. The Nasdaq 100 Index is commonly used as a comparison for technology funds because it is heavily weighted toward technology and innovative growth companies, making it a widely recognized benchmark for tracking the performance and trends of the tech sector.
SOX Semiconductor Index: A modified market capitalization-weighted equity index composed of 30 companies primarily involved in the design, distribution, manufacture, and sale of semiconductors.
Solactive Etna Artificial General Intelligence Index: The index focuses on three key categories within the AI sector: hardware, infrastructure, and applications. Constituents are selected based on a proprietary AI Exposure Score, which assesses each company's relevance to and readiness for artificial intelligence technology.
