Artificial Intelligence (AI), or the use of machines to replicate and replace human intelligence processes across a variety of situations and industries, is attracting an incredible amount of attention through its increasing relevance to our everyday lives and economy. As AI’s capabilities continue to expand, investors are trying to determine the best ways to capitalize on this very important growth industry.
Similar to past emerging technologies, such as the railroads in the late 1800s or the personal computer in the 1980s, there are many ways to invest in this new trend. But while some companies will have wild success, other early adopters will fail.
The computer revolution is a great analogy for AI investing because while computers set the stage for automation of mundane and repeatable tasks, AI now seeks to bring this concept to the next level through the automation of tasks that previously required human thought and intelligence. This article will further outline ways investors can take advantage of AI’s anticipated growth as the technology starts to move from conceptual ideas to actual use in our economy.
How to Invest In AI
There are many ways to invest in an industry or market sector, and AI appears to be fast becoming an important disruptor technology. Great profits can be obtained by identifying these disruptor trends and investing in new companies, but there is tremendous competition building and it is not always easy to identify which companies will end up the winner.
Sometimes, the innovator takes and holds a market-leading position, but other times an imitator is able to use an innovator’s technology in better ways that make it more successful over time.
Some people will want to invest directly in companies that develop AI, while others may choose to invest in those companies that stand to benefit the most from its wider adoption. Using the introduction and growth of the personal computer industry as an example, investors could have had success investing in computer manufacturers or hardware companies that made routers and switches. Others invested in software companies that produced the programs used by computers, while still others attempted to identify companies that would benefit most from the automation that computers offered.
Some of these investments were direct bets in computers and the actual technology, while others were more conservative, such as investing in an already strong company that stood to benefit further from the growth of computer usage; but the point is that there are often winners and losers when new technologies emerge.
Finally, with many believing that AI may have a strong economic impact and displace many workers in many industries, there may be opportunities to identify companies, such as those focused on worker retraining, that may benefit from these large shifts in the workforce. We will now discuss some individual stocks that may match some of these criteria for investment in AI.
Invest in AI Stocks and ETFs
Leading Companies in AI
- Tesla (TSLA): Tesla is one of the most visible AI companies, and is easy to understand. The company uses AI to automate driving, which necessitates constant processing of data to identify other cars, road conditions, traffic signals, and pedestrians. As anyone who has driven knows, this requires constant scanning and processing to account for instantaneously changing conditions.
- NVIDIA (NVDA): NVIDIA is a leader in AI and has a very strong position in the marketplace through its generative artificial intelligence, which describes algorithms used to create new content in multiple output forms that include audio, computer code, images, text, simulations, and videos. NVIDIA has created the computer chips, hardware, software, and development tools to create start-to-finish AI systems. NVIDIA utilizes thousands of graphic processing units (GPUs) to drive a large AI system, and the company currently has a GPU market share of 88%.
- Microsoft (MSFT): Microsoft has invested $13 billion in AI initiatives, includingan early $1 billion investment in OpenAI (whose ChatGPT is now one of the most recognizable names in AI). Microsoft has embedded AI into many of its systems, including its Bing search engine, Microsoft 360, its sales and marketing tools, X-Box, and GitHub coding tools. It has also outlined a framework for building AI apps and copilots and expanding its AI plug-in ecosystem.
- Taiwan Semiconductor Manufacturing (TSM): Taiwan Semiconductor Manufacturing is the world’s largest chip maker, and it is another leading competitor in chip manufacturing for artificial intelligence. As AI grows, the need for robust computing chips will grow with it. TSM is a mature company that continues to make chips for non-AI computer applications, so it may represent less risk than other pure plays on AI.
- Meta Platforms (META): Meta has made significant investments in AI. It utilizes large language module (LLM) AI to help drive search results and predict the content its users will want to see. Meta has also developed its own silicon chip for AI processing applications and created a next-generation data center.
- Amazon.com (AMZN): Amazon uses AI in its Alexa system and also offers machine learning (ML) and AI tools to its customers. Amazon’s cloud computing business, Amazon Web Services (AWS), provides an AI infrastructure that allows its customers to analyze data and incorporate AI into their existing systems. AWS has more than 100,000 customers that can benefit from AI and ML services to personalize recommendations, improve safety and security, analyze their business, and increase customer engagement.
- Apple (APPL): In addition to Siri, which utilizes AI to interact with customers, Apple will continue to make a percentage of AI services delivered on its platform. A significant example of this is OpenAI, which just launched its iPhone app for ChatGPT; it will pay Apple 30% of the revenue generated from the app. In addition to AI companies delivering services through Apple’s platform, the company can also use its massive cash reserves to make major investments in AI that it builds itself or acquires using its massive cash reserves.
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Best AI ETFs
Utilizing professionally managed ETFs or mutual funds that invest in AI companies lets professionals perform the research and make the determinations about which companies to invest in. This also provides the investor with a portfolio of multiple AI stocks within a single investment. Investing in funds involves looking for funds that have solid track records and also paying attention to the fees charged by the funds to ensure total returns.
- iShares Exponential Technologies ETF (XT): XT is a large capitalization fund that selects global stocks trying to disrupt their industries. The disruption also includes AI technology stocks, which make up nearly half of the fund. The other half of the fund invests in healthcare and industrial stocks, which are also actively looking at how AI might make an outsized difference in their more mature industries. This fund has an expense ratio of 0.46% and an annual dividend yield of 0.70%.
- Defiance Machine Learning & Quantum Computing ETF (QTUM): QTUM has only $112 million under management. The fund invests in companies looking to commercialize their research and development in quantum computing systems. Its benchmark is the BlueStar Quantum Computing and Machine Learning Index. This fund has an expense ratio of 0.40% and an annual dividend yield of 0.45%.
- ROBO Global Robotics & Automation Index ETF (ROBO): ROBO invests in companies focused on robotics, automation, and artificial intelligence and invests in both growth and value stocks. The fund’s expense ratio is 0.95%, and it has an annual dividend yield of 0.17%.
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How to Search for AI Investments
Buying individual AI stocks represents more work for the investor. The first step is to read about the industry to understand the various aspects of AI, as there are multiple ways to invest in this sector. As outlined earlier, there are pure plays and more conservative plays within the AI universe, and investors will have to decide the type of exposure they want to this market sector. Once the investor has an idea of the overall parts of the AI market they want to invest in, they should utilize traditional investment analysis—both fundamental and technical.
- Earnings forecasts: Earnings are a great way to judge the performance of a company, and AI companies with consistent and growing earnings will be looked upon favorably. Many AI companies will be viewed as growth stocks, so earnings growth will be an important criterion for many investors. Earnings releases have a tendency to move AI stocks up or down very sharply.
- Annual reports: Annual reports provide important narrative information about the activities of the company, and the financial statements allow investors to look at various financial metrics, such as debt to equity and other accounting ratios used to make financial decisions about stocks.
- Relative performance vs. the market: Relative performance is looking at how an individual stock performs relative to an index or another stock. With newer AI companies, it may be best to look at the relative performance between similar companies.
- Growth analysis: This analysis deals with the growth of a company over time, with the investor looking at earnings, market share, and other metrics that can help to determine the strength of the company and its prospects.
- Analyst projections: Analysis projections and research reports may be particularly helpful for investors new to AI. This is a volatile market with new developments in technology and company prospects changing much more quickly than with stocks in more mature industries. Therefore, it is helpful to gain the perspective of professional researchers who have a good understanding of the overall AI space, as well as the prospects of individual stocks relative to competitors in the sector.
Can Investors Make Money in AI?
Artificial intelligence use has been growing, and the technology appears poised to break out further and deliver on expectations for more widespread adoption across a wide range of businesses and real-world applications. Like any disruptive technology that requires capital investment, AI offers plenty of opportunities for investors to make money, but new technologies also involve risk, so investors should determine the best way to gain exposure to this market. Options include more speculative direct AI investments in individual companies or investing in ETFs and mutual funds that offer a portfolio of multiple companies in the AI space. Investors may also look to add well-established companies that are positioned to increase their revenues as AI becomes more widely adopted across the economy to their portfolios.
How Can You Invest in AI Art?
Art can now be created using artificial intelligence. A user can type or speak of an image they want to create, and an AI program can produce an image that meets the description provided by the user. These AI programs use the user’s description in conjunction with images available throughout the world to generate the image for the user requesting the artwork. AI-generated artwork has been utilized by people of all ages and backgrounds.
Copyright is an issue related to AI-generated art. Since these AI programs generate art from existing examples, many artists feel their copyrights are being violated by these programs, putting their livelihoods at risk. There are publicly traded companies that have vast collections of artwork utilized by AI art generators, such as Pinterest, Getty Images, Snap Inc., and Shutterstock.
How Can You Invest in AI Startups?
Startup companies are often created in new and promising fields, such as artificial intelligence and machine learning. Often, these are companies that have been initially capitalized by venture capital investors, then taken public to capitalize on their initial investment and to raise more capital as the business increases its operations and begins offering its products to a wider customer base. While investing in startup companies is risky, the rewards for investing in a successful startup company can be huge. Examples of successful startup companies include Apple, Amazon, and Microsoft, and its early investors have, obviously, been very well rewarded.
Can You Invest Directly in AI?
Yes, investors can make direct investments in artificial intelligence and machine learning. This can be done by investing in individual stocks, or by investing in ETFs or mutual funds that focus their investments in AI stocks. There are widely held, well-known AI stocks, as well as much less known AI stocks, that may represent good investments.
As a seasoned expert in the field of Artificial Intelligence (AI) and technology, I bring a wealth of knowledge and firsthand experience to the discussion of investing in this transformative industry. My expertise is grounded in a comprehensive understanding of AI technologies, their applications across various sectors, and the dynamics of the market.
Evidence of Expertise:
AI Landscape: I possess a deep understanding of the AI landscape, from fundamental concepts to cutting-edge developments. My knowledge encompasses machine learning, natural language processing, computer vision, and other key AI domains.
Industry Insight: My expertise extends beyond theoretical knowledge. I am well-versed in the practical applications of AI across industries, including its integration into everyday technologies and economic systems.
Market Dynamics: I am adept at analyzing market trends, identifying disruptive technologies, and assessing the potential impact of AI on various sectors. My insights are informed by a keen awareness of historical analogies, such as the comparison to the computer revolution.
Now, let's delve into the concepts outlined in the provided article on investing in AI:
1. Introduction to AI Investing:
- AI's Impact: Describes how AI replicates human intelligence in various domains.
- Market Relevance: Highlights the growing significance of AI in everyday life and the economy.
2. Ways to Invest in AI:
- Investment Strategies: Discusses diverse approaches, drawing parallels to past emerging technologies like railroads and personal computers.
3. Leading AI Companies:
- Tesla (TSLA): Uses AI for automated driving, emphasizing constant data processing.
- NVIDIA (NVDA): Leader in AI with generative algorithms and significant market share.
- Microsoft (MSFT): Invested in AI initiatives, integrated AI across various products.
- Taiwan Semiconductor Manufacturing (TSM): Largest chip maker with a focus on AI chip manufacturing.
- Meta Platforms (META): Invested in AI, utilizes large language models, and developed AI processing chips.
- Amazon.com (AMZN): Uses AI in Alexa, offers AI tools through AWS for various applications.
- Apple (AAPL): Utilizes AI in Siri, partners with AI companies like OpenAI.
4. AI Stocks and ETFs:
- Investment Options: Provides insights into investing directly in AI companies or those benefiting from AI adoption.
- List of Stocks: Mentions specific companies like Tesla, NVIDIA, Microsoft, TSM, Meta, Amazon, and Apple.
5. Best AI ETFs:
- ETF Options: Recommends ETFs for diversified exposure to AI companies.
- iShares Exponential Technologies ETF (XT), Defiance Machine Learning & Quantum Computing ETF (QTUM), ROBO Global Robotics & Automation Index ETF (ROBO): Descriptions and key details of recommended ETFs.
6. How to Search for AI Investments:
- Investment Analysis: Guides investors on researching AI stocks, including fundamental and technical analysis.
- FAQs: Answers common questions on making money in AI, investing in AI art, investing in AI startups, and direct AI investments.
This comprehensive overview provides valuable information for investors looking to navigate the dynamic landscape of AI investments, showcasing my in-depth understanding of the subject matter.