Artificial intelligence has become one of the most talked about technologies over the past few years. Many see AI with large dollar signs in their eyes. However, every new technology has a lag between invention and commodification and just as every new technology has the risk that it won’t pan out. For investors, this poses a challenge. While the risks are real so, too, are the opportunities. So, for a technology that is still effective in the drumroll phase, how can you invest? Here are a few ideas. For more personalized investment advice, consider working with a financial advisor.
Artificial Intelligence Industry
Artificial intelligence has not yet been truly monetized. Now, there’s a lot to unpack in that statement. For starters, tech companies have been integrating AI into their software for a generation and making tons of money off it. From autocorrect to playlists to the monsters in World of Warcraft, companies have been profiting off software decision-making for a long time.
The new AI, however, is a different thing entirely. The news-making artificial intelligence has come in the form of predictive algorithms like ChatGPT’s chatbot software and DALL-E’s image generator. These tools remain experimental. They are inventions and innovations but, at the time of writing, not yet products. Part of that is because engineers still aren’t quite sure what they are yet.
Advocates say that current AI software represents a fundamentally new tool, one that will change the way we interact with information and each other. Critics argue that they are just high-volume autocorrects, machines best suited for reorganizing existing work at best and stealing it at worst, but incapable of creating new value.
In both cases, monetization is a challenge. If tools like ChatGPT represent a true leap forward, then companies will need some time to figure out their commercial use. If, instead, they fundamentally rely on copying and pasting the work of others, then they may be more novelty than revolution.
Invest In Individual Stocks Like Google and Microsoft
Alphabet (GOOG), or Google, and Microsoft (MSFT), which kept its maiden name, are some of the earliest companies racing for commercial AI applications. In both cases, their goal is to search. Both companies want to turn their search engines into a conversational source of inquiry, analysis and advice.
Instead of searching for information by a string of keywords, you would just ask the search engine questions and it would pop out the answer based on what’s out there on the web. In this way, AI’s best and worst qualities align with the business model of search. The goal is to paraphrase articles like this onto Google/Microsoft sites, so those companies can collect the ad revenue without having to pay for the work.
Google’s Bard AI remains experimental and, true to the product’s core design, Bing’s AI search remains underwhelming. However, both companies hope to make this a major product at some point in the future.
This is a theme that applies broadly: Invest in companies that are will use AI in their products. As currently designed, AI will most likely be a backend feature in an enormous range of technology products. So, for example, while your phone is the front-end product, meaning the product you directly interact with, AI will become part of the back-end, meaning one of the many moving pieces that make your phone work.
Look for companies that can use AI in their products. Invest in them directly, so that you can collect their gains from this new technology.
Robo-traders have emerged as a major section of the market and for a good reason.
A robo-trader is a company that offers algorithmically managed portfolios. In essence, you invest your money according to a series of goals or conditions that you establish, then the brokerage manages that portfolio based on its own software model. These have shown particularly good results for investors because they tend to seek long-term investments, which tend to outperform short-term and high-volume trading.
Artificial intelligence has the potential to improve this further. Investors are already experimenting with AI-built portfolios and investment strategies. This trend will only continue to grow and the companies that build their portfolios with AI from the ground up will stand to benefit significantly.
Invest In AI Funds
As with all industries, an excellent way to invest in AI is through relevant funds. In fact, there’s something of a gold rush on artificial intelligence ETFs right now. The market is filled with companies that are looking to capitalize on companies that operate in or around this technology.
For an investor, this is both an opportunity and a problem. The opportunities are out there, but how do you identify good investments? One good approach is to start by deciding how you want to invest in AI. There are ETFs, for example, such as Global X Robotics & Artificial Intelligence ETF (BOTZ) and ROBO Global Robotics and Automation Index ETF (ROBO), among others that let you invest in this market.
These funds invest in stocks and assets that support AI, such as companies that make the chips and hardware that AI companies depend on. Other funds will try to invest directly, buying into companies that are developing AI software itself, while others will invest in the companies that will use AI in their own products.
The best place to start with an AI-related fund is to look at how it invests. That will help you figure out if this is something you’re interested in.
The Bottom Line
Artificial intelligence could very well be the next big boom. However, it can be difficult to determine the right areas that could make strong investments. Both directly and indirectly, AI might present plenty of opportunities that you can profit from. Finding the right one for you will depend on a number of factors including your expectation of risk.
Technology Investment Tips
- Investing in any new technology is a risk. When it pays off, it can pay off big, but there are no guarantees. A financial advisor can help you determine the best investment plan for you when it comes to AI. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Finance and technology go hand-in-hand and the industry dedicated to that idea is called fintech. It’s important to fully understand how the industry operates if you’re wanting to invest.
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