The explosive growth of Artificial Intelligence (AI) in 2023 has got many investors wondering if they should get on board.
According to data by Next Move Strategy Consulting the market for AI is expected to soar in the coming decade. Its nearly 100 billion US dollars value could increase twentyfold by 2030, up to nearly two trillion US dollars.
From healthcare to finance, its far-reaching applications and profound potential make AI an exciting frontier for investors worldwide. But how do you begin?
My guide aims to navigate the complexities of AI investments, shedding light on strategies, opportunities, and potential challenges in the sector.
The AI Investment Landscape
There are three key ways to invest in AI, including:
- Direct investments in AI companies involve buying shares in companies developing or using AI technology.
- Investments in AI-related ETFs and funds: This involves buying shares in a basket of companies that are involved in the AI industry.
- Investments in venture capital funds: This involves investing in funds that invest in early-stage AI companies.
Each of these investment options has its own advantages and disadvantages, as I’ll explain
Direct investments in AI companies can be risky, but they also offer the potential for high returns. Investments in AI-related ETFs and funds are less risky, but they also offer lower potential returns. Investments in venture capital funds can offer high returns, but they are also not for the faint-hearted.
When choosing AI investments, it is important to consider your risk tolerance, investment goals, and time horizon. It is also important to do your research and understand the companies or funds you are investing in.
I’ll go deeper into each of these avenues below.
7 Quick Steps to Invest in AI
If you want the process in a very quick format, here’s my 7 step process to investing in AI.
- Choose a Broker or Investment Platform: Start by selecting where you’ll carry out your investments. eToro is my top broker for AI stocks due to its diverse options and ease of use.
- Deposit Funds: After setting up your account, deposit funds using your preferred payment method.
- Identify Shares in the AI Industry: Search for companies in the AI industry where you want to invest. These could be businesses developing AI technologies or ones using AI in their operations. There’s also the option to invest in AI-focused Exchange Traded Funds (ETFs).
- Consider Your Risk Tolerance: Like all investments, AI investments come with their share of risks. You should assess your level of comfort very carefully.
- Input the Number of Shares to Purchase: Determine the number of shares you want to buy based on your budget and the current value of the shares.
- Confirm Your Purchase: Review your order and confirm the purchase. Once completed, you’ll own shares in the world of AI.
- Diversifying Your Portfolio: This step encapsulates the wisdom of not putting all your eggs in one basket. Investments spread across a mix of AI companies from different industries and stages of development can help manage risk and potentially enhance returns.
How to Invest in AI Stocks
If you’re assessing the top AI stocks of the moment, these will likely be on your shortlist.
| Company | Ticker | Market capitalization | Price-to-earnings ratio | Reasons to invest |
|---|---|---|---|---|
| Oracle | ORCL | $172.1 billion | 16.7 | * Leading provider of AI-powered applications for businesses of all sizes |
| UnitedHealth | UNH | $447.9 billion | 19.4 | * Investing heavily in AI to improve the efficiency and effectiveness of its operations |
| IBM | IBM | $138.2 billion | 12.3 | * Pioneer in AI research and development with a deep understanding of the potential of AI to transform businesses |
| Tesla | TSLA | $739.7 billion | 103.4 | * Pioneer in the development of self-driving cars with one of the most advanced AI-powered self-driving technologies in the world |
| NVIDIA | NVDA | $522.7 billion | 45.7 | * Leading manufacturer of graphics processing units (GPUs) that are essential for AI applications |
| Microsoft | MSFT | $2.2 trillion | 26.2 | * Leading provider of cloud computing and enterprise software with a wide range of AI-powered applications |
| Taiwan Semiconductor Manufacturing | TSM | $582.5 billion | 22.6 | * World’s leading contract chipmaker that is investing heavily in AI to develop new chip designs and manufacturing processes |
| Meta Platforms | META | $525.5 billion | 18.8 | * Parent company of Facebook, Instagram, and WhatsApp that is investing heavily in AI to improve the user experience of its social media platforms |
| Amazon.com | AMZN | $1.6 trillion | 56.2 | * World’s largest online retailer that is investing heavily in AI to improve its operations and customer experience |
| Apple | AAPL | $2.5 trillion | 25.5 | * Global leader in consumer electronics with one of the most popular AI assistants in the world, Siri |
Oracle
Oracle is a leading provider of AI-powered applications for businesses of all sizes. It has a deep understanding of the potential of AI, and offers a wide range of AI-powered applications already being used by businesses globally.
UnitedHealth
UnitedHealth, a healthcare giant, is investing heavily in AI to enhance the efficiency and effectiveness of its operations. They are using AI to automate tasks, improve decision-making, and personalize patient care, indicating their potential to benefit from the growth of AI in the healthcare industry.
IBM
IBM, a pioneer in AI research and development, has a profound understanding of the potential of AI and a long history of innovation in this field. They are anticipated to benefit from the growth of AI in the years to come.
Tesla
Tesla, a forerunner in the development of self-driving cars, boasts one of the most advanced AI-powered self-driving technologies in the world. This makes the company well-positioned to dominate the self-driving car market.
NVIDIA
NVIDIA, a leading manufacturer of graphics processing units (GPUs) essential for AI applications, is one of the leading providers of AI-optimized GPUs. This places NVIDIA in a prime position to benefit from the rapid growth of the AI market.
Microsoft
Microsoft, a major provider of cloud computing and enterprise software, is investing heavily in AI and offers a range of AI-powered applications. Given AI’s status as the future of computing, Microsoft stands well-positioned to leverage this trend.
Taiwan Semiconductor Manufacturing (TSM)
As the world’s leading contract chipmaker, TSM is heavily invested in AI to develop new chip designs and manufacturing processes. TSM’s strategic position is likely to yield benefits from the growth of AI in the years to come.
Meta Platforms
Meta Platforms, the parent company of Facebook, Instagram, and WhatsApp, is investing heavily in AI to enhance the user experience of its social media platforms. Given AI’s future in social media, Meta Platforms is well-positioned to capitalize on this trend.
Amazon.com
Amazon.com, the world’s largest online retailer, is heavily invested in AI to improve its operations and customer experience. Given AI’s potential in the future of e-commerce, Amazon is strategically placed to capitalize on this trend.
Apple
Apple, a global leader in consumer electronics, houses one of the most popular AI assistants in the world, Siri. Given the role of AI in the future of consumer electronics, Apple stands to benefit significantly from this trend.
How to Invest in AI ETFs
Here are some of the most popular AI ETFs:
iShares Exponential Technology ETF (IBUY)
The iShares Exponential Technology ETF (IBUY) is a passively managed ETF that tracks the Nasdaq Exponential Technologies Index. The index is designed to measure the performance of companies that are involved in the development and application of new and emerging technologies, including artificial intelligence, robotics, and 3D printing.
IBUY has an expense ratio of 0.49% and a dividend yield of 0.40%. The ETF has been around since 2017 and has a market capitalization of $1.3 billion.
ARK Innovation ETF (ARKK)
The ARK Innovation ETF (ARKK) is an actively managed ETF that seeks to invest in companies that are involved in disruptive innovation. The ETF’s investment objective is to “deliver long-term growth of capital by investing in companies that are pioneering disruptive innovation.”
ARKK has an expense ratio of 0.75% and a dividend yield of 0.00%. The ETF has been around since 2014 and has a market capitalization of $27.5 billion.
Global X Robotics & Artificial Intelligence ETF (BOTZ)
The Global X Robotics & Artificial Intelligence ETF (BOTZ) is a passively managed ETF that tracks the Indxx Global Robotics & Artificial Intelligence Thematic Index. The index is designed to measure the performance of companies that are involved in the development and application of robotics and artificial intelligence technologies.
BOTZ has an expense ratio of 0.75% and a dividend yield of 0.00%. The ETF has been around since 2014 and has a market capitalization of $1.7 billion.
Vanguard Information Technology ETF (VGT)
The Vanguard Information Technology ETF (VGT) is a passively managed ETF that tracks the MSCI US Information Technology Index. The index is designed to measure the performance of the information technology sector of the United States stock market.
VGT has an expense ratio of 0.10% and a dividend yield of 1.20%. The ETF has been around since 2004 and has a market capitalization of $323.2 billion.
SPDR S&P 500 Information Technology ETF (XLK)
The SPDR S&P 500 Information Technology ETF (XLK) is a passively managed ETF that tracks the S&P 500 Information Technology Index. The index is designed to measure the performance of the information technology sector of the United States stock market.
XLK has an expense ratio of 0.10% and a dividend yield of 1.30%. The ETF has been around since 1998 and has a market capitalization of $64.8 billion.
These ETFs track different indices of companies that are involved in AI research and development, as well as companies that are using AI in their businesses.
How to Invest in Venture Capital Funds that Invest in Early-stage AI Companies.
Here are some ways to invest in venture capital funds that invest in early-stage AI companies:
- Direct investment: This is the most common way to invest in venture capital funds. You can invest in a venture capital fund by directly contacting the fund manager and submitting an investment application. However, this option is only available to accredited investors, who have a net worth of at least $1 million or an annual income of at least $200,000.
- Publicly traded venture capital funds: Some venture capital funds are traded on public markets, such as the NASDAQ. These funds are called “publicly traded venture capital funds” (PTVCFs). You can invest in PTVCFs by buying shares of the fund on a stock exchange.
- Crowdfunding: There are a number of crowdfunding platforms that allow you to invest in early-stage AI companies. These platforms allow you to invest small amounts of money in multiple companies, which can help you diversify your portfolio.
- Angel investing: Angel investors are individuals who invest their own money in early-stage companies. Angel investors typically invest in companies that are not yet ready to attract venture capital funding. If you are interested in angel investing, you can connect with angel investor networks or attend angel investor conferences.
It is important to note that investing in venture capital funds, PTVCFs, or angel-funded companies is a risky investment. These investments are illiquid, which means that you may not be able to sell your shares quickly if you need to. Additionally, these investments are volatile, which means that the value of your shares can go up or down significantly over time.
Is it too late to invest in the AI Boom ?
Given how much artificial intelligence (AI) has hit the news in 2023, many potential investors wonder if they’ve missed the AI investment wave.
My feeling is that several key indicators suggest that the AI sector remains ripe with investment opportunities.
(1) Artificial intelligence (AI) technology is experiencing rapid development, with important advancements in areas like machine learning and natural language processing happening all time. As innovation continues, new investment opportunities open up.
(2) AI’s explosive growth has prompted governments worldwide to create regulatory frameworks to facilitate its responsible development. Rather than hindering growth, these regulations typically guide AI technologies’ ethical and efficient deployment. Things should speed up.
(3) I note huge positive investor sentiment towards the AI sector, with venture capital positions increasing yearly.
