How to Invest in AI: Expert Tips for Maximizing Your Portfolio

Introduction

Do you know how much potential value is up for grabs with the AI revolution? Artificial intelligence is expected to add about $15.7 trillion to the global economy by 2030. No wonder savvy investors are looking for the top AI stocks to get into the game-changing tech gold rush early on. Ready to add the best AI investments to your portfolio? Check out our guide on how to invest in AI confidently and wisely below.

Highlights and Key Takeaways

• Artificial intelligence (AI) is expected to be a big game changer to the global economy with a contribution of up to $15.7 trillion by 2030, and the capacity to transform various industries. 

• Individual stock investors can bet directly on AI startups or invest conservatively in already established tech giants that stand to gain massively from AI growth. 

• ETFs and mutual funds that invest in the best AI companies offer investors a diversified and less risky investment option compared to individual stocks. 

• When looking into how to invest in AI, it’s crucial to consider the potential risks of the investments as well.

Understanding AI and Its Potential

AI, in simple terms, is the science of building machines that imitate or exceed human intelligence. The resulting machines can perform tasks that are typically associated with human minds, like learning, problem-solving, perceiving, language understanding, and reasoning. If you’ve used Alexa, Siri, chatbots on websites, or the popular ChatGPT, you’ve already interacted with AI.

Artificial intelligence, particularly generative AI models, is still in the infancy stage. But AI’s use cases span across almost all industries, from self-driving cars to quality control. Here’s a snapshot of how AI is transforming various industries: 

• IT/Engineering: Generative AI can write and edit code.

• Healthcare: AI is helping in medical diagnosis through image recognition, drug discovery, and the creation of personalized treatment plans. 

• Marketing and Sales: AI models assist in creating and editing personalized sales content in text, image, and video formats.

• Risk and Legal: AI models can answer questions based on the legal documentation fed to them. 

• Finance: Adoption of AI streamlines operations with algorithmic trading, fraud detection, portfolio building, and risk management. 

As technology advances and businesses learn how to adopt artificial intelligence in their daily operations, we can expect strong growth in the coming decade. This anticipated explosive impact of AI across industries could create a goldmine for early and strategic investors. Remember the dot-com frenzy? Early investors in these artificial intelligence pioneers can reap massive returns as AI reshapes economies, just like those who bet on Google and Amazon in their infancy.

Identifying Opportunities in AI

Ready to make wise AI investment moves? The first step is to understand how to unearth the AI gems that can generate a fortune with time. This section will explore the different ways to invest in AI, such as individual stocks, ETFs, and mutual funds. 

AI Stocks

The most direct way to invest in this transformative technology is by buying pure-play AI stocks. These are stocks of companies that focus on the development and deployment of AI solutions. They exclusively create AI algorithms, software, and hardware that can position them as industry leaders. 

While this pathway could lead to massive gains, it’s not easy to choose winners from losers in the early stages of any technological advancement. So, a lot of due diligence is necessary. However, below is a list of some of the best-performing pure-play AI stocks now.

• C3.ai: It’s an AI company that focuses on developing cloud software to help companies implement AI use in their operations. 

• Symbiotic Inc: This robotic and software company streamlines the supply chain. 

• UiPath Inc: The software company offers tools for AI and automation to businesses.

If you’re new to stock trading and are ready to buy the best AI stocks, the first step is to open a brokerage account. Here’s how: 

• Find the best stock brokers offering AI stocks. 

• Go to the broker’s website and find the signup button.

• Enter your information, typically your name, ID, and email, and follow the onscreen prompts to complete the signup process. 

However, you should evaluate brokers thoroughly, checking the following: 

• Fees and Commissions: Look for the broker’s fee structure to see the various charges like transaction costs, account maintenance charges, inactive account fees, and trading commissions. 

• Investment Options: Ensure the broker offers the AI stocks you’re interested in.

• Platform and Tools Usability: Evaluate the user interface, research tools, and other features to ensure they’re helpful and easy to use. 

• Customer Support: Choose a broker with multi-communication channels (phone, email, live chat) and responsive teams, preferably 24/7. 

Check out our curated list of the best online brokers for beginners to skip the hassle. 

Invest in Companies Benefitting From AI

Besides pure-play AI companies, artificial intelligence stocks also include established tech companies that are expected to benefit when the tech takes off. These are mostly blue-chip companies that have invested in AI or partnered with true AI leaders. So, if you’re skeptical of investing in smaller AI developers or AI start-ups, consider companies such as: 

• Microsoft (MSFT): Microsoft strategically partners with AI market leaders. One of the most notable moves was the $10 billion investment in OpenAI, maker of ChatGPT. 

• Nvidia (NVDA): Manufactures graphic processing chips (GPUs) that are used in machine learning. It has been one of the biggest AI stock market winners. 

• Apple Inc: Uses AI to improve Siri and expects to continue developing its generative artificial intelligence products. 

• Alphabet Inc: Owns one of the popular deep learning AI tools, DeepMind, and a chatbot that keeps getting better, Google BardAI. 

• Amazon.com, Inc.: Ensures the foundation of its products is AI as evidenced by Alexa, Amazon Web Services (AWS), and Amazon Go. 

AI ETFs and Mutual Funds

Another way to gain exposure to AI investing is through ETFs and mutual funds that focus on AI. Below are some benefits of investing in AI through ETFs and mutual funds. 

• Diversification: ETFs and mutual funds bundle numerous AI-related stocks into a single package, diversifying your portfolio, and ensuring that even if one company fails, your overall investment isn’t significantly impacted. 

• Low Costs: Funds often have lower expense ratios, meaning less of your money goes into fees, including management costs. 

• Professional Expertise: Funds are actively managed by experienced analysts who research and adjust the stock holdings. So, you leverage their expertise without paying hefty costs or dedicating hours to researching individual companies. 

• Niche Opportunities: Some funds focus on specific AI subsectors, allowing you to target areas with greater growth potential. 

Learning how to buy ETFs works similarly to individual stocks as they are traded on stock exchanges. Mutual funds on the other hand are operated by fund managers. To ensure a headache-free experience, ensure you trade ETFs with a regulated broker only. 

Evaluating AI Investments

It might be too early to predict who the winners will be a decade from now. But that shouldn’t make you a bystander. Here are the factors to consider when choosing artificial intelligence stocks. 

• Company’s Financial Health: Find out if the company is generating sufficient revenue to sustain operations and fuel growth. Avoid companies without a sustainable monetization strategy or potential profitability. 

• Company’s Standing: Look for companies with a competitive advantage, for instance, proprietary technology, strong partnerships, and differentiated market niche. The company should also be gaining a fair market share of its target market, evidenced by industry partnerships and a growing user base. 

• Future Growth Potential: Evaluate whether the target market for the company’s AI solution is large and expanding to gauge future potential. 

• Management Team: Check if the leadership team has a proven track record of success in AI or relevant industries. A company or fund’s management team experience and execution skills determine its outlook and ability to navigate challenges. 

Risks Of Investing in AI

While AI’s potential is undeniable, investing in AI stocks or funds isn’t risk-free. Below are some of the potential risks of investing in artificial intelligence. 

• Technological Changes: The AI industry is evolving rapidly. Today’s cutting-edge tech or solutions might be absolute tomorrow, affecting companies that can’t keep up with the innovation pace. 

• Evolving Legal Landscape: Governments are still grappling with the ethical and legal AI implications. New regulations can result in penalties or operational shutdowns for some companies. 

• Competition: The AI industry is highly competitive. Companies can lose their market share or profitability if they can’t maintain a competitive edge. 

Understanding such risks of investing in AI helps in approaching investments with an informed and cautious lens. 

Diversification in AI Investing

One of the ways to mitigate the risk of AI investments is to diversify your portfolio. Diversification spreads out risk to minimize its impact on your investment. 

Owning individual AI stocks gives you potential for high returns but also higher risk in case of company or industry setbacks. Adding or investing in EFTs and mutual funds reduces the risk. So, aim for a well-balanced portfolio. 

Conclusion

When looking into how to invest in AI, you can consider stocks of pure-play AI companies and blue-chip companies that stand to benefit from this revolution, or EFTs and mutual funds that focus on AI market leaders. While there are risks associated with AI investments, there’s also a possible goldmine for savvy investors. So, with careful research and strategic investing, you can potentially build a fortune from the AI boom.