How to invest in AI has become a popular topic as investors try to learn ways to profit from artificial intelligence, and capitalize on the future.
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.
Continue reading to discover how to invest in artificial intelligence.
How to Invest In AI: Getting Started
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.
Some investors 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 it.
Finally, with many people believing that AI may displace workers in various industries, there may be opportunities to identify companies, such as those focused on worker retraining, that could benefit from these large shifts in the workforce.
How to Invest in AI – 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. There are pure plays and more conservative plays within the AI universe, and investors will have to divide the type of exposure they want to this market sector. Once the investor has an idea of the overall parts of the AI market one wants to invest in, use 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 criteria 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.
- Growth Analysis: The analysis deals with the growth of a company over time, with the investor looking at earnings, market share and other metrics that can help determine the strength of the company and its prospects.
- 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 relative performance between similar companies.
- 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 that have a good understanding of the overall AI space, as well as the prospects of individual stocks relative to competitors in the sector.
How to Invest in AI – Leading AI Stocks
Tesla Inc (NASDAQ: 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. Furthermore, with Tesla’s annual AI Day, the goal is to recruit the best talent in AI as the company plans to continue investing heavily in this field.
NVIDIA Corporation (NASDAQ: NVDA)
NVIDIA is a leader in AI, and has a very strong position in the marketplace through its generative artificial intelligence. The company offers AI solutions to various industries, ranging from health care to higher education. NVIDIA has created the computer chips, hardware, software and development tools to offer 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%.
While the company suffered in 2022 with crypto mining changes (like the Ethereum merge) causing the GPU market to drop, analysts are supporting NVIDIA again since the company announced new products such as the Omniverse Cloud Services for industrial Metaverse applications.
One prime example of recently investing successfully in NVIDIA features Mark Skousen, PhD, a Presidential Fellow in economics at Chapman University and a descendant of inventor and Founding Father Benjamin Franklin. Professor Skousen heads the Forecasts & Strategies investment newsletter that focuses on stock investing, as well as the TNT Trader advisory service that recommends both stocks and options. He instructed his TNT Trader advisory service subscribers to take a short-term profit on May 25 of 323.96% by selling call options that he had recommended in NVIDIA. Skousen further advised the sale of all the call options in parts at varying levels to produce an average gain during just weeks of 196% in the TNT Trader portfolio. Plus, the NVIDIA share price rocketed 34% during the short time Skousen recommended it.
Mark Skousen, head of TNT Trader, meets with inspirational author Paul Dykewicz.
Amazon (NASDAQ: AMZN)
AI technology is deeply integrated throughout Amazon’s entire company. The company uses AI to customize the products that customers see and recommend. In addition, it is used at certain fulfillment centers, with small robots used to ferry packages around the warehouse to their human workers. There are many Amazon Fresh and Amazon Go stores that use the Just Walk Out payment system.
So, AI plays a role in most parts of its business, from targeting advertisements to the Amazon Web Services platform. Alexa is also in many households around the country, and AWS cloud customers have access to many AI tools.
How to 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 been very well rewarded.
How to Invest in AI – Direct Investment
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.
How to Invest in AI – The Bottom Line
Artificial intelligence is becoming a larger part of our everyday life which is intriguing for many individual investors. Although large tech companies such as Tesla, NVIDIA, and Amazon have made great strides in developing AI technology, smaller startup companies can have a larger upside. Regardless, incorporating AI into your portfolio is a good move going forward.
Adam Johnson writes for www.stockinvestor.com and www.dividendinvestor.com.
