Artificial intelligence seems to be all everyone’s talking about lately, from the headlines to casual conversations. If you’re reading this, you are probably curious about AI investing. With so many predictions about AI technology, it can feel like the Wild West. It’s tough to sort the real opportunities from fleeting trends, especially if you are not familiar with investing in AI companies or the stock market in general. This article cuts through the hype to give you a clearer understanding of the AI landscape and smart ways to play it.
Just like investing in artificial intelligence, many other game-changing tech advancements of the past started this way. Think about the explosion of the internet or smartphones; it wasn’t immediately obvious which companies would be the Amazon or Apple of their day. Some investors hit gold with companies directly making the tech itself, like the early chip makers or software pioneers.
Others saw a future where regular companies would be transformed by these technologies and invested in the industries likely to become power users. They made wise bets even if they didn’t know every tech detail, which is a good lesson for investing in AI today: there are different ways to win.
Going All In or Hedging Your Bets
Jumping right into individual AI stocks might feel like the most direct route. And for good reason, the year-over-year returns of some top players are jaw-dropping.
But it’s a lot like placing a single bet on one racehorse: exciting, sure, but it comes with high stakes. Some investors love the thrill, banking on one company to lead the pack.
Others, especially those who’ve been around the block, prefer a diversified approach. Investing in AI ETFs is like betting on the whole field rather than one horse.
AI-Focused ETFs for Balanced Investing
Instead of meticulously researching individual stocks and risking everything on one firm, AI ETFs distribute your money across a bunch of them.
This approach softens the blow if one company takes a hit. It offers broader exposure to different AI applications across various industries.
Consider checking out ETFs like the Global X Robotics & Artificial Intelligence ETF (BOTZ), a large-cap fund packed with almost 200 stocks aiming to redefine their sectors. With a whopping $3.4 billion in assets, this ETF focuses on the power of AI across the tech, healthcare, industrial, and even financial spaces.
Another option is the Defiance Machine Learning & Quantum Computing ETF (QTUM). It follows an index that includes companies at the forefront of next-gen disruptive technology and machine learning across multiple markets and market capitalizations.
Investing in Individual AI Companies
For investors who like to dig into the weeds, there’s always the thrill of picking those winning stocks yourself. This, though, calls for more homework on your part. Don’t just buy into hype; go beyond catchy headlines and influencer buzz. Research AI companies and determine which companies are doing it right.
Do they have real products in the market? How are their earnings growth? Investors are seeking more than just hype.
Also, look beyond the companies directly developing AI. Just as many companies benefited from AI’s capabilities in recent years, investing in established companies well-positioned to implement new AI tools and solutions is a solid route. Keep in mind that past performance is not a guarantee of future results.
Promising AI Stocks for Growth and Value
A strong contender is Nvidia (NVDA), a leading AI company that makes AI chips. Yes, everyone and their mother seems to be talking about them, and with good reason. Even if you’re not a hardcore gamer, chances are you’ve heard about the insane graphics processing power their graphics processing units (GPUs) deliver.
Well, guess what? Those GPUs aren’t just for mind-blowing visuals; they’ve become essential for machine learning and generative AI. Nvidia sits right at the heart of a major tech shift, powering innovations across all sorts of industries.
As with all high-flying stocks, though, remember this: just because it’s soaring doesn’t guarantee future performance. Keep in mind that investing involves risk. What’s different about this time with investing in AI is the involvement of huge, already dominant players.
Take Microsoft (MSFT), for instance, which is one of the leading AI companies. Investing in the AI industry isn’t a total gamble for Microsoft because it’s not a one-trick pony. Microsoft has been around for decades, leading the pack in personal computing and enterprise software.
Microsoft already has a vast customer base and reliable revenue streams, so venturing into AI comes from a strong foundation, reducing that pure “start-up risk.” They are a major player when it comes to large language models.
This time around, you’re not just relying on those fresh-faced AI startups hoping to change the world. These heavy hitters already have enormous influence on the business landscape. They’re not placing their bets solely on AI, so they’re more cushioned from bumps in the road than a smaller company that only has AI as its bet.
Think back to Amazon (AMZN). We don’t only use them for shopping or streaming nowadays. Their cloud business, AWS, quietly powers many online platforms, which gives them the financial strength and market reach to take bigger swings in new ventures, like data centers.
Even Warren Buffet, a legendary investor not exactly known for chasing tech fads, recently invested heavily in a tech company. This signals something important: even seasoned veterans see that AI’s potential goes beyond trendy talk. You’ve got giants pushing AI forward, and Wall Street is backing them.
It’s still early in the game. Like a smart poker player, don’t show all your cards upfront. Investing in AI steadily over time, rather than dropping all your chips at once, could be a wiser move.
AI Goes Global
Here’s something crucial: investing in AI isn’t just an American game. This isn’t about backing “Team USA” solely. Over in China, tech firms are running neck and neck with American rivals, snagging huge user bases with their AI solutions.
Take Baidu’s generative AI chatbot, for instance. Back in December, they announced user numbers matching those of ChatGPT. Those are some serious figures. It’s a signal that smart AI investors aren’t limiting their horizons.
They’re looking to regions with large data sets and a hungry market for innovative solutions. That includes places like India with a high adoption rate of mobile technology and Singapore, which is fast becoming a global hub. International investments can be a great way to diversify. It’s important to diversify geographically in the same way we diversify by betting on a range of companies or sectors. Geographic locations outside of the US bear watching.
AI Investment Landscape: Key Statistics and Facts
Now, you’re probably wondering what are some of the reasons people invest in AI? What are the prospects?
According to Goldman Sachs Economic Research, the amount of money invested into AI globally is projected to reach an eye-watering $200 billion by 2025. What’s more is that during the 10 year period from 2013 to 2022, there was an explosion in investments into AI, totaling nearly $1 trillion, as stated in an analysis conducted by Stanford University.
Even with recent concerns of an impending bubble similar to the Dot Com burst in March of 2000, the market for AI seems strong and getting stronger. In fact, the market soared by a staggering 154%, reaching a whopping $14.7 billion, in a short one-year span from 2018 to 2019.
Then there are the big players like Microsoft, who acquired a 49% stake in ChatGPT parent, Open AI, in January of 2023. Just a few short months later, in May of 2023, tech giants accounted for 67%, or $27 billion, in financing to emerging AI companies, as published in The Financial Times . This trend makes it clear that those already leading in technology continue to see the power and impact AI will have across every market. AI applications are expected to increase substantially in the coming years.
What does this all tell us? That this isn’t a flash-in-the-pan fad. Investing in AI isn’t about predicting which horse will win the race next year; it’s about getting into a market that’s changing how the whole track operates.
FAQs about Investing in AI
Is AI a Good Investment?
AI offers a lot of potential to earn money, but like any tech with heavy investment, it also has risk. Knowing if it’s a “good” investment comes down to how much risk you’re comfortable with. You can invest directly into AI companies: riskier but potential for big payouts.
If your appetite for risk is smaller, invest in an AI-focused ETF: a “basket” of companies. This cushions against loss but returns might not be as massive.
What is the Best AI Company to Invest in?
Picking one single “best” company is nearly impossible; it’s still evolving. A good rule of thumb is to invest across several promising AI firms, especially the larger more established firms, especially if you’re just starting out. You might want to start with the biggest AI companies.
Investing in AI goes beyond picking companies building it. Many existing businesses will transform their industries thanks to AI. For instance, even banks with centuries of history behind them are implementing AI in risk analysis and customer service. Finding those firms on the edge of adopting game-changing AI can be just as savvy.
What AI Stocks Will Boom in 2024?
Forecasting precise booms is tempting, but it’s rarely foolproof. AI stocks to watch for this year are those with: strong products already in use, a broad scope of applications beyond just one niche market, solid earnings that show potential, and companies poised to implement these solutions to solve critical business issues. If everyone thinks it’ll boom, it’s probably already factored into the price. AI demand is only increasing, so getting in early may be a good strategy, though keep in mind that these are still the early stages.
Don’t forget that all investments lose money, and past performance does not guarantee future results. This is just for illustrative purposes.
What AI Stock is Warren Buffet Buying?
This was big news – Buffet’s holding company, Berkshire Hathaway, bought shares of Taiwan Semiconductor Manufacturing (TSM). They’re a chipmaking powerhouse, crucial for the physical tech needed to power AI, and they are one of the biggest hardware companies in the world.
Buffet’s bet isn’t on any flashy software; it’s on the very nuts and bolts making AI run, the processing units. It’s a more conservative approach, but his move underscores just how seriously the world is taking AI.
Conclusion
Think of investing in AI this way: it’s more of a marathon than a sprint. While picking the individual stock “winner” is exciting, balancing that with broader ETF strategies lowers risk. Diversifying across countries, AI solution companies, and companies positioned to take advantage of AI implementations might prove to be even smarter as time goes on. Those who stick to long-term visions for how investing in AI can reshape markets will be better positioned when it comes time to cash in.
