Investing In AI: A Beginner’s Guide

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The rapid pace of innovation in artificial intelligence (AI) has brought many experiences to reality that were previously only thought to be fiction. As this technology continues to reshape how we live and work, many investors want to know how to invest in AI.

This beginner’s guide to AI investing can help you better understand what AI is, how companies use the technology and your options for investing in this fast-growing industry.

What is AI?

AI attempts to replicate human intelligence in a computer or machine with faster speed and greater accuracy. As systems become more intelligent, AI becomes more powerful, and its uses and applications may reach every stock sector and industry.

Analysts at International Data Corp. (IDC), a provider of market intelligence, predict that AI could have a global economic impact of $19.9 trillion through 2030.

“ChatGPT’s explosive global popularity has given us AI’s first true inflection point in public adoption,” said Ritu Jyoti, group vice president, Worldwide Artificial Intelligence and Automation Market Research and Advisory Services at IDC in a 2024 report. “As AI and automation investments grow, focus on outcomes, governance, and risk management is paramount.”

• How companies use AI

  At AI’s core is big data, which data scientists, engineers and other experts use to build complex algorithms that can take in new information to improve their performance and accuracy. Organizations increasingly tap into the power of AI to inform critical business decisions. A few ways they do this include:

  • Companies like Microsoft (MSFT) and Google (GOOGL) employ AI to program machines to solve problems, answer questions and conduct tasks previously done by humans.
  • The transportation industry is poised for a massive transformation around electric and autonomous vehicles, potentially bringing billions of dollars to the global economy.
  • The health care industry uses AI in the drug discovery process, robotic-assisted surgery and diagnostics.

How to invest in AI

For most retail investors, there’s a good chance you already have exposure to AI, as many large U.S. public companies are either using AI or actively looking to invest in the technology. If you want more targeted exposure, here are some options.

Invest in AI ETFs

Exchange-traded funds (ETFs) offer an efficient and easy way to gain broad exposure to AI stocks.

Similar to other thematic investing types — such as blockchain technology, cybersecurity and genomics — AI ETFs hold a basket of publicly traded companies involved in various phases of AI, from development to implementation.

These are some of the best AI ETFs.

In a twist on AI investing, these funds use AI to pick their holdings.

Invest in AI stocks

Another way to invest in AI is to buy shares in companies, such as C3.ai (AI) and UiPath (PATH), that are directly creating AI technology. Getting in on the ground floor of this cutting-edge field can be exciting, but doing so carries some risks: 

• AI is a newer field where regulations are constantly changing, and laws that might privilege a company today could hinder it tomorrow.
• There are also ethical issues, such as using copyrighted works to train AI models, that are playing out in court.
• Stocks in AI-focused companies could prove volatile, yet offer high growth potential.

These AI stocks soared last year, but a different bet could be on tech stocks with an AI focus.

Looking for a different angle on tech or AI stocks? Maybe the answer lies across the sea with these major Chinese tech companies.

Invest in companies using AI

Another, and perhaps more conservative, avenue for AI investing is to own stock in companies that are using AI in innovative ways. For example: 

• Drugmaker Pfizer (PFE) is using AI to speed up drug discovery and development. 
• John Deere (DE) is using machine-learning applications to reduce the use of herbicides and provide farmers with sophisticated data analysis. 
• Sportswear giant Nike (NKE) uses AI to improve customer experience, optimize supply chains and innovate in product design.

Is investing in AI a good idea?

Deciding whether to invest in AI depends on your goals and risk tolerance. If you can stomach the ups and downs that come with a high-growth industry, investing in AI might be a good fit for you. However, hot trends inevitably cool off — remember the dot-com bubble? — so AI investing can also be risky.

Whichever way you lean, never put all your eggs in one basket and consider consulting a financial advisor before making big investing decisions.

Bottom line

While AI investing offers high growth potential, it also comes with significant risks, including market volatility, regulatory uncertainty and ethical concerns. It’s a solid move to maintain diverse portfolios, do careful research before investing in AI stocks and meet with a financial advisor if you’re making a big shift.

Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making an investment decision. In addition, investors are advised that past investment product performance is no guarantee of future price appreciation.