We are living in the age of technology and innovation. Artificial Intelligence is one such field of technology that is booming all across the world due to its increasing relevance in our everyday lives and economy. As the popularity of AI grows, investors are looking for the best ways to invest in AI and capitalise on this amazing opportunity. But what exactly is Artificial Intelligence?
Artificial Intelligence is a branch of technology that aims to replicate and replace human intelligence processes across a variety of industries. It is a field of computer science that focuses on the development of machines that can perform tasks which usually require human intelligence. It is viewed as an innovative technology that will increase productivity and efficiency for large and small businesses alike.
Similar to past emerging technologies like the computer revolution in the 1980s or the railroads in the 1800s, there are many AI investment opportunities. While some companies have had their fair share of success, some just fail.
In this blog, we will help you understand what is AI technology, how companies use it and how to invest in artificial intelligence. Let’s dive in.
What is Artificial Intelligence?
Artificial Intelligence is a technology that replicates and mimics human intelligence in problem-solving and decision-making in computers through complex algorithms. In simple terms, AI can be defined as the science and engineering of making intelligent machines.
Nowadays, AI is widely used in cloud-based, consumer applications, firmware, and even enterprise applications. It is a cutting-edge technology that has spread across several industries and will be quite essential in the future. As systems become more advanced and intelligent, AI becomes more powerful and its applications reach even the remotest industries.
For example- the banking industry uses Artificial Intelligence to audit large heaps of data and make high-speed decisions in trading. The transportation industry is slowly moving towards self-driving autonomous vehicles, which are largely possible due to Artificial Intelligence.
Undoubtedly, AI is the next big technology that will revolutionise a number of industries. But the question still remains- how do you invest in AI stocks?
How to Invest in AI?
There are a ton of ways to invest in any sector or industry. Particularly, AI is a disruptive technology that is growing rapidly. Great profits can be obtained by finding the best AI companies to invest in. However, the rising popularity of AI also means that there is tough competition in the industry and identifying the right companies will not be easy.
While some institutional investors choose to invest directly in companies that develop AI, others take a more passive approach and choose to benefit from companies using AI technology.
For example- investors could earn profits by investing in companies that design the hardware parts for computers like motherboards and routers. On the other hand, some investors could also benefit from investing in companies that develop software for computers and machines. Even still, some investors try to identify the companies that would benefit the most from the implementation of Artificial Intelligence.
Whatever the choice, the fact is that there are often winners and losers when new technologies emerge and there is bound to be competition when new technologies emerge.
Let’s take a look at the best individual stocks and AI companies to invest in.
Investing in AI Stocks(Leading Companies in AI)
The best ways to invest in AI are stocks and shares. It offers growth prospects, potentially high returns and best of all diversification of your portfolio. Here are the best AI stocks and shares to invest in.
Owned by the richest man in the world, Tesla is probably one of the best AI companies to invest in. It is one of the most visible AI companies and also a pioneer in automated driving vehicles, which use artificial intelligence technology. The company uses AI in transportation to constantly process data and identify other cars on the road, road conditions, traffic signals, pedestrians, etc. If you have ever driven a car before, you will understand that this process requires constant scanning and high-speed data processing to account for dynamic road conditions.
Probably the biggest manufacturer of GPUs in the computer industry, NVIDIA is a leader in AI technology. It is a leader in the industry with its generative artificial intelligence which describes algorithms used to generate content in multiple output forms like images, texts, videos, and even simulations. NVIDIA creates the hardware, software, computer chips, and development tools to create AI systems from start to finish. It has a market share of 88% in the GPU market and utilises thousands of Graphics Processing Units (GPUs) to power a large AI system.
As one of the top companies in the technology sector, Microsoft itself has invested billions of dollars in AI ventures, including a $1 billion investment in OpenAI(the parent company of Chat GPT). Microsoft has implemented AI in various of its services, like the Bing search engine, Microsoft 360, a sales and marketing tool, Xbox gaming consoles, and GitHub coding tools. It is also working on a framework that helps in building AI applications.
Taiwan Semiconductor Manufacturing(TSM)
One of the world’s largest chip manufacturers, Taiwan Semiconductor Manufacturing is also one of the best AI companies to invest in. It is a leading manufacturer in chip manufacturing for artificial intelligence technology. As AI continues to expand, the demand for computing chips will also grow. Moreover, TSM is a mature company that also designs and manufactures chipsets for non-AI systems, making them less riskier than some other options.
Possibly the biggest contributor in the field of AI, META is one of the best AI companies to invest in. It uses large language modules(LLM) AI to drive search results and predict the best content the users will be interested in. META also utilises machine learning(ML) algorithms to analyse historical data and user behaviour to provide the best results. It has created a next-generation data centre and developed its own silicone chip for AI processing applications.
Amazon offers a wide range of services that utilise the AI technology. The most notable application is its Alexa system. It also offers Machine Learning and AI tools to its consumers. Its cloud-computing software, Amazon Web Services(AWS), offers an AI infrastructure that allows users to analyze big data and implement AI into their existing systems. AWS has over 10,000 users who reap the benefits of AI and ML services to personalize recommendations, analyze their businesses, increase customer engagement, and improve security.
You must have heard about the voice-assistant Siri, which utilises AI to interact with users. Apple also has shares in a wide range of AI services. One example is Microsoft’s OpenAI, which just launched its ChatGPT app for iPhone. It will also pay Apple 30% of the revenue generated from this particular application. In addition to AI companies providing services through Apple’s platform, the company can also use its large capital to fund and invest in AI that it builds for itself or acquires.
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How to Invest in AI ETFs?
Investing in AI ETFs provides the investor with a portfolio of multiple AI stocks within a single investment vehicle. It also lets the investor diversify its portfolio while minimizing risk. AI ETFs majorly consist of stocks with high holdings in companies that leverage AI technology. Here is a list of the best AI ETFs to invest in 2023.
ROBO Global Robotics and Automation Index(ROBO)
As the name suggests, ROBO invests in tech companies focused on robotics, automation, and artificial intelligence applications. It invests in both growth and value stocks. The ROBO fund’s expense ratio is 0.95% and has an annual dividend yield of 0.17%
iShares Exponential Technologies ETF(XT)
XT is a major capitalization fund that selects global stocks intending to disrupt their industries. AI technology stocks make up nearly half of the ETF’s funds. The other half invests in sectors like healthcare and industrial stocks, which are also leveraging AI technology to make a difference in their respective industries. It has an expense ratio of 0.6% and an annual dividend yield of 0.70%.
Defiance Machine Learning and Quantum Computing ETF(QTUM)
The QTUM fund invests in companies that aim to commercialize their research and development in quantum computing systems. It has approximately $112 million under management and its benchmark is the BlueStar Quantum Computing and Machine Learning Index. Moreover, quantum computing is also an emerging technology that is still in its development stage, meaning long-term investments in this particular ETF can yield potentially large returns. It has an expense ratio of 0.40% and an annual dividend yield of 0.45%.
Robo Global Artificial Intelligence ETF(THNQ)
The Robo Global Artificial Intelligence ETF holds a global box of AI-related shares whose portfolio is currently weighing around 0.5% to 2.7%. This particular ETF is mandated to buy stocks of companies that are using AI services like cloud computing and cloud services. It also holds various companies that develop infrastructure and technology that enable AI services and companies that apply AI in various sectors like e-commerce, healthcare, business, etc.
Global X Artificial Intelligence and Technology ETF(AIQ)
If you are investing in AI, Global X Artificial Intelligence and Technology ETF is a great option. This is another ETF that holds a global box of AI-related stocks across various industries. Moreover, this ETF aims to provide investment results that are in tune with the price and yield performance. It has a staggering return percentage of 31.8%.
Global X Robotics Artificial Intelligence ETF(BOTZ)
This ETF is among the top performers of this year with a growth of 35.4%. Its index tracks companies that are involved in non-industrial robots, industrial robotics and automation, unmanned vehicles, and artificial intelligence.
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How to Seek Out AI Investments?
Searching for the best AI companies to invest in can be a herculean task for an individual investor. For starters, they must understand the industry and its various verticals as there are multiple ways to invest in AI.
As mentioned earlier, you can either directly invest in a company or take a more conservative approach. Investors must identify the type of exposure they want in this sector. After the investor has a general idea about the industry and their personal goals, they should conduct a traditional investment analysis.
Forecast of Earnings
Earnings are one of the best ways to judge the performance of a company. AI companies with consistent and profitable earnings will be favourable. These companies are viewed as growth stocks, meaning earning will be a crucial criterion for many investors as it can move the stock drastically.
Annual reports of a company provide important information about the activities and the financial statements allow investors to study the various financial metrics, like debt or equity. This helps in making informed financial decisions about investing in a particular stock.
Relative Performance vs. Market
Relative performance is how an individual stock performs relative to a particular index or another stock. With more and more companies emerging in the market, it will be in your best interest to look at relative performances between similar companies.
Growth analysis helps in determining the growth of a company over time, with investors looking at metrics like earnings, and market share, along with other financial metrics. This will help you understand the strength of the company and potential future projections.
Analysis reports and future projections reports may be particularly helpful for investors interested in investing in AI. The tech industry and AI are highly volatile markets with new developments and company prospects changing more rapidly than other mature industries. It is beneficial to consult a financial advisor who has an in-depth understanding of the AI space and the prospects of individual stocks.
Investment in AI companies has become increasingly popular and for good reason. Artificial Intelligence is an innovative technology that offers significant returns. If you are also interested in AI investment opportunities, make sure to conduct a thorough analysis and understand the market and the technology itself before diving in.
When it comes to investment, there are always risks involved. The AI market can be volatile and be subjected to rapid changes which makes it a relatively riskier investment. Moreover, the AI sector only has limited regulations, meaning it is very difficult to forecast the risks and developments related to the investment. Make sure to do your due diligence before you start investing in AI.
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Frequently Asked Questions(FAQs)
Ans. There are many top companies that leverage AI technology to offer cutting-edge services to their users. Some of the best AI companies to invest in include Meta, Microsoft, NVIDIA Corporation, Advanced Micro Devices Inc., etc.
Ans. Yes, you can invest directly in artificial intelligence and machine learning technology by investing in individual stocks or ETFs that focus on artificial intelligence. There are popular AI stocks that are widely held and some lesser-known AI stocks that represent good investments.
Ans. Like any emerging technology, AI offers plenty of growth and earning opportunities for investors. That being said, new technologies often involve risky and volatile markets. It is recommended to conduct your due diligence and determine the best way to invest in AI. Some of the best options include investing in individual AI stocks or investing in ETFs or mutual funds that offer a diversified portfolio of multiple companies in the AI sector.