How to Invest in Artificial Intelligence

Artificial Intelligence (AI) is one of the most exciting new technologies of the 21^st century and arguably the biggest technological advancement since the advent of the computer.

AI is the technology that enables machines to perform tasks that normally require human intelligence, such as learning, reasoning, decision making, and creativity. AI has the potential to transform every industry and sector, from healthcare and education to manufacturing and entertainment.

Investing in AI can offer huge rewards for investors who want to capitalize on the growth and innovation of this emerging field.

The technology is exciting because it can solve problems that were previously impossible or too complex for humans. AI can also create new opportunities and markets that were not imaginable before.

For example, AI can help diagnose diseases, improve crop yields, optimize energy efficiency, enhance customer service, generate personalized content, and much more. AI can also augment human capabilities and empower people to achieve more with less effort.

AI is not a single technology, but a collection of different methods and applications that can be combined in various ways. Some of the most popular types of AI include machine learning, natural language processing, computer vision, speech recognition, and robotics.

Each of these types of AI has its own advantages and challenges, and investors need to understand them before making their investment decisions.

Money Morning is here to explain how to invest in AI and what to look for in the best AI stocks, ETFs, and funds.

What Makes Up the AI Industry?

The artificial intelligence industry is composed of various segments, applications, and actors that are involved in the development, deployment, and use of AI technologies. AI technologies are systems that can perform tasks that normally require human intelligence, such as learning, reasoning, decision-making, and creativity.

Some of the main segments of the AI industry are:

• Machine learning: This is the process of enabling machines to learn from data and improve their performance without explicit programming. Machine learning can be divided into subfields such as supervised learning, unsupervised learning, reinforcement learning, deep learning, generative, and natural language processing.
• Computer vision: This is the field of AI that deals with enabling machines to understand and interpret visual information, such as images, videos, and scenes. Computer vision can be used for tasks such as face recognition, object detection, scene understanding, and augmented reality.
• Speech recognition: This is the field of AI that deals with enabling machines to recognize and process human speech and audio signals. Speech recognition can be used for tasks such as voice assistants, transcription, translation, and speech synthesis.
• Robotics: This is the field of AI that deals with creating machines that can move and interact with their environment. Robotics can be used for tasks such as manufacturing, exploration, entertainment, and healthcare. 

Some of the main applications of the AI industry are:

• Marketing and sales: AI can help businesses optimize their marketing and sales strategies by analyzing customer behavior, preferences, and feedback. AI can also help generate personalized recommendations, content, and offers for customers.
• Product and service development: AI can help businesses innovate and improve their products and services by incorporating user feedback, market trends, and competitive analysis. AI can also help automate and accelerate the design, testing, and deployment processes.
• Strategy and corporate finance: AI can help businesses make better strategic and financial decisions by providing insights into market opportunities, risks, and scenarios. AI can also help optimize resource allocation, portfolio management, and valuation models.
• Supply chain management: AI can help businesses optimize their supply chain operations by forecasting demand, inventory, and delivery. AI can also help monitor and improve the quality, efficiency, and sustainability of the supply chain.

Some of the main actors of the AI industry are:

• AI providers: These are the companies that develop and offer AI products and services to other businesses or consumers. Examples of AI providers are Google, Microsoft, IBM, Amazon, Facebook, etc.
• AI adopters: These are the companies that use AI products and services to enhance their own business processes or offerings. Examples of AI adopters are Netflix, Spotify, Uber, Airbnb, etc.
• AI enablers: These are the companies that provide the infrastructure or platforms that support the development or deployment of AI products and services. Examples of AI enablers are Nvidia, Intel, AWS, Azure, etc.
• AI regulators: These are the entities that set the rules and standards for the ethical and responsible use of AI products and services. Examples of AI regulators are governments, international organizations, industry associations, etc.

How to Invest in AI Stocks Wisely

Artificial intelligence (AI) is one of the most exciting and disruptive trends in the technology sector. AI refers to the ability of machines to perform tasks that normally require human intelligence, such as learning, reasoning, decision making, and creativity. AI has applications in various industries, such as healthcare, finance, manufacturing, entertainment, and more.

Investing in AI stocks can offer attractive returns for investors who want to capitalize on the growth and innovation of this emerging field. However, investing in AI stocks also involves significant risks, such as high volatility, competition, regulation, and ethical issues. Therefore, investors need to be careful and diligent when choosing AI stocks to buy.

The Top Artificial Intelligence ETFs:

One of the easiest ways to get exposure to the AI sector is through exchange-traded funds (ETFs), which are collections of stocks or other securities that track an index or a theme. ETFs offer diversification, liquidity, low fees, and passive management. There are several ETFs that focus on AI or related themes, such as robotics, automation, cloud computing, or big data. Here are some of the best AI ETFs to consider:

Global X Robotics & Artificial Intelligence ETF (BOTZ): This fund invests in companies that are likely to benefit from the growth in robotics and AI, such as industrial automation, autonomous vehicles, cloud computing and machine learning12.

ROBO Global Robotics & Automation Index ETF (ROBO): This fund tracks an index of companies that are involved in robotics, automation and AI across 12 subsectors, such as 3D printing, sensing, healthcare and security123.

ARK Autonomous Technology & Robotics ETF (ARKQ): This fund focuses on companies that are leading the innovation in autonomous technology and robotics, such as electric vehicles, drones, space exploration and AI platforms12.

WisdomTree U.S. AI Enhanced Value Fund (AIEQ): This fund uses an AI-powered stock selection process to identify undervalued U.S. companies that have the potential to outperform the market14.

First Trust Nasdaq Artificial Intelligence & Robotics ETF (ROBT): This fund follows an index of companies that are classified into four categories based on their involvement in AI and robotics: enablers, engagers, enhancers and providers5.

iShares Robotics and Artificial Intelligence ETF (IRBO): This fund invests in companies that produce or use robotics and AI technology across various industries, such as manufacturing, healthcare, consumer and entertainment

The Top Artificial Intelligence Stocks

Another way to invest in AI is through individual stocks of companies that develop or use AI solutions or products. However, this approach requires more research, analysis, and risk tolerance than investing in ETFs. Moreover, not all AI stocks are created equal. Some may have more exposure to AI than others, some may have more growth potential than others, and some may have more valuation risk than others.

Here are some of the best AI stocks to consider:

• Nvidia Corp. (NASDAQ: NVDA): Nvidia is a leading chipmaker that specializes in graphics processing units (GPUs), which are essential for powering AI applications such as computer vision, natural language processing, gaming, and self-driving cars. Nvidia also offers software platforms and tools for AI developers and researchers, such as CUDA, TensorRT, Jetson Nano, and Omniverse⁶. Nvidia has a market cap of $1.15 trillion and a YTD performance of 51% as of July 18⁷.
• Alphabet Inc. (NASDAQ: GOOG): Alphabet is the parent company of Google and YouTube, which use AI extensively for search engine optimization, content recommendation, ad targeting, and voice recognition. Alphabet also owns several other AI-related businesses and projects, such as Waymo (self-driving cars), DeepMind (AI research), Google Cloud (cloud computing and AI services), and Bard (AI chatbot)⁸. Alphabet has a market cap of $1.82 trillion and a YTD performance of 46% as of July 18⁹.
• Meta Platforms Inc. (NASDAQ: META): Meta, formerly known as Facebook, is the owner of the world’s largest social media network, which uses AI for content moderation, personalization, facial recognition, and translation. Meta also has a strong presence in the virtual reality (VR) and augmented reality (AR) markets, which rely on AI for immersive experiences. Meta’s AI initiatives include ChatGPT (AI chatbot), Horizon (social VR platform), and Project Aria (AR glasses)¹⁰. Meta has a market cap of $1.01 trillion and a YTD performance of 28% as of July 18¹¹.
• Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE: TSM): Taiwan Semiconductor is the world’s largest contract chipmaker, which produces chips for many leading tech companies, including Nvidia, Apple, Qualcomm, and AMD. Taiwan Semiconductor is also a key supplier of chips for AI applications, such as data centers, cloud computing, edge computing, and 5G networks¹². Taiwan Semiconductor has a market cap of $560 billion and a YTD performance of 9% as of July 18¹³.
• ASML Holding N.V. (NASDAQ: ASML): ASML is the world’s leading provider of lithography systems, which are machines that print circuit patterns onto silicon wafers to make chips. ASML’s lithography systems are essential for producing advanced chips that enable AI applications, such as GPUs, CPUs, and memory chips. ASML also uses AI to optimize its own manufacturing processes and products¹⁴. ASML has a market cap of $332 billion and a YTD performance of 48% as of July 18¹⁵.

When picking top AI stocks, there are four strategic areas to focus on:

• Company leadership: This refers to the vision, strategy, culture, and execution of the company’s management team. A good company leadership should have a clear understanding of the opportunities and challenges in the AI sector, a long-term perspective on innovation and growth, a collaborative and diverse culture that fosters creativity and learning, and a track record of delivering results and value to shareholders.
• Profitability and ability to be profitable: This refers to the financial performance and health of the company. A profitable company should have a positive net income, a high return on equity, a strong cash flow, and a low debt-to-equity ratio. A company’s ability to be profitable depends on its revenue growth, margin expansion, cost efficiency, and competitive differentiation.
• A strong business plan: This refers to the value proposition, product portfolio, customer base, market share, and competitive edge of the company. A strong business plan should address a large and growing market opportunity, offer a unique and superior product or service that solves a customer problem or need, attract and retain a loyal and diverse customer base, capture and defend a significant market share, and create and sustain a competitive advantage over rivals.
• Competition: This refers to the intensity, dynamics, and trends of the competitive landscape in the AI sector. A competitive company should be aware of its strengths and weaknesses relative to its competitors, monitor and anticipate the moves and actions of its rivals, adapt and respond to the changing market conditions and customer preferences, and innovate and differentiate itself from the competition.

Potential for Explosive Growth

The AI industry has a huge potential for growth in the coming years, as AI technologies become more advanced, accessible, and widely adopted across various sectors and domains. One of the most promising and disruptive trends within the AI industry is generative AI, which refers to applications that can create new data or content based on existing data or content, such as text, images, music, and code. Generative AI applications can perform tasks such as summarizing information, generating captions, composing lyrics, creating logos, and coding software.

According to a report by McKinsey, generative AI could add the equivalent of $2.6 trillion to $4.4 trillion annually to the global economy across 63 use cases analyzed by McKinsey. This would increase the impact of all artificial intelligence by 15 to 40 percent. Some of the sectors that could benefit the most from generative AI are banking, high tech, life sciences, media and entertainment, retail, and education.

The AI industry is expanding rapidly, causing many investors to wonder how to invest in the technology.

And it’s easy to see why. The potential is there for explosive growth and impressive financial returns.

As with all stocks, investing in the AI industry has risks. But as we covered, you can still invest in AI with minimal risk.

If you’d like to learn more about investing in AI, start at the beginning of our comprehensive guide for information on how to choose AI stocks. This guide will help you discover the many different types of AI businesses and how to make the best decisions when investing in the industry.

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