How To Invest In AI

The world of AI technology is a fascinating space that's only just becoming realized. While the concept of artificial intelligence has floated around in the public consciousness since at least 1955, when John McCarthy coined the term, recent developments have thrust it into the limelight. Tech users at the front edge of adoption are basking in some of the unique and powerful capabilities that AI systems bring to bear. But many others are looking elsewhere when it comes to leveraging AI tools. Namely, plenty of investors are wondering how they can capitalize on a piece of the pie. AI investments at the corporate level are ballooning, with Microsoft's massive cash infusion into OpenAI leading the way on this front.

Even though the average investor won't be able to stake their claim to a sizable chunk of an AI company like these corporate behemoths, there are still ways to get in on the action, allowing for the potential to eek out great returns on stock picks that exist directly within the artificial intelligence field and in its periphery. Note that investors should always approach the market with a solid plan of action, including an exit strategy when it comes time to sell stocks. From direct players down the chain, these are great approaches to get you into the world of AI investments.

Software provider C3.ai (NYSE: AI) is a company today focused on developing AI technologies. IBM (NYSE: IBM) is another brand working directly in the field — with its Watson supercomputer. SoundHound (NASDAQ: SOUN) is another option for investors hoping to make their way directly into the AI space. All three of these businesses work specifically to build AI systems and improve upon their capabilities.

Perhaps the most direct route into the marketplace is through investment in the industry's players. However, it's worth noting that The Motley Fool specifically warns against investment in C3.ai. The brand has plenty of cash on hand to continue operating at its current targets, but future trouble may be brewing in the coming year as its primary revenue-producing contract is set to expire in April 2025.

As is always the case with emerging technologies, direct investment is often rewarded handsomely when a breakout star is picked. Yet, since it's truly impossible to predict what company, partnership, or personality in the industry might ultimately crack the code and lift themselves up into a sort of standard-bearer role, a more scattershot approach is likely the best option when deploying a direct investment strategy. This, however, means you'll need to do quite a bit of research to find publicly traded companies working in the field, as well as take a chance (i.e., the risk) on many of them to remain solvent and (ideally) profitable.

Microsoft (NASDAQ: MSFT) comes immediately to mind when considering business entities in partnership with AI players. In concert with OpenAI, Microsoft has positioned itself as an industry bigwig, even though the company isn't working directly within the AI space as a major contributor. Its $13 billion total investment in OpenAI stands at nearly half the company's valuation (at $29B) and represents perhaps the most important partnership in the field — that is, if OpenAI continues to produce cutting-edge solutions in the AI space with this immense funding fueling its progress.

Microsoft also underpins the computing power OpenAI requires to continue its work. Microsoft's cloud-computing resources are fueling the research, and resulting products have become integrated features of the brand's Bing search engine, Azure cloud tools, and Microsoft Office suite.

Alphabet, the parent company of Google (NASDAQ: GOOGL), is another giant in the technology world that has poured time, money, and energy into the AI space. Not only has Google developed its own AI systems — Bard, now called Gemini — but the company is investing directly in AI players, too. Google's investments have flowed toward Anthropic to the tune of $2 billion, , and in 2023, the rumor was that Google was in talks to invest "hundreds of millions" in Character.AI (via Reuters).

Brands that have gone all in on backing AI industry leaders will be positioned to reap the greatest rewards if their investments yield a breakthrough advancement. For instance, assume for a moment that OpenAI creates a truly intelligent artificial entity; if so, then Microsoft would benefit most directly in new product integrations, surging the company's stock price.

Nvidia (NASDAQ: NVDA), which led the best-performing stocks of 2023 when it gained 236%, is the preeminent chipmaker fueling the artificial intelligence revolution. Nvidia has consistently found itself at the cutting- edge of computational power innovation, and it stands to reason the brand would also have its fingers securely within the AI space, too. "Everybody builds on NVIDIA first," Naveen Rao, a tech innovator and neuroscientist told The New York Times in August 2023. This makes the company a crucial cog in any successes that AI builders will achieve.

If AI is prospering, the supply chain that makes it tick will also have to be thriving. While Nvidia stands at the front of this pack, it isn't alone. Oracle (NYSE: ORCL), for one, builds a range of cloud and database solutions that AI developers have come to rely on in their daily function, while Intel (NASDAQ: INTC), Taiwan Semiconductor Manufacturing (NYSE: TSM), and Micron Technology (NASDAQ: MU) all deliver potent chip technology that plays its own part in the success of the AI industry's computational breakthroughs.

Investing in the things that an industry needs to survive and thrive can be a great way to buy into its future successes. As AI developers continue to grow in size and deliverables, it'll consume more and more of these raw materials — albeit, the concept of a raw ingredient feels a bit different in this space. Following the supply chain back through to source materials (that is, grain for a bread company or silicon for a solar-power provider) offers a unique means of investing in an industry as a whole.

Ask yourself, who exactly benefits from AI breakthroughs? This isn't just a question covering those directly in the AI business. In fact, the purpose of this thought experiment is to move as far out from the AI space as possible. For instance, car makers like Tesla (NASDAQ: TSLA) have continuously worked to improve autonomous driving technologies, which would certainly find great improvements with the help of newly potent AI systems. Amazon (NASDAQ: AMZN), meanwhile, is yet another potential big winner downstream, with the concept of drone delivery continuously being floated for the e-commerce giant's future.

The same can be said for service brands like Intuit (NASDAQ: INTU) and DocuSign (NASDAQ: DOCU), which both rely on AI tools to improve user experience. DocuSign's AI integrations analyze contract details and secure data in order to allow for digital signatures and remote sharing of sensitive documents, while Intuit's tax preparation software would become even more versatile in locating and applying tax-break opportunities for filers with increasingly powerful AI tools. Adobe (NASDAQ: ADBE) is another business that could offer an even better service to its users with new breakthroughs in the AI space. As a creative tool used to build and manipulate documents, artwork, and more, the product has integrated its own art generating system called Adobe Firefly.

No investment strategy is complete without a consideration of index funds ETF options (here's what to know before investing in ETFs). These investments are agglomerated stock vehicles that combine a portfolio of AI stocks into a single investment selection. ETFs like ROBO, ROBT, or BOTZ offer a wealth of exposure to the AI marketplace without having to worry about any specific asset selection headaches.

As mentioned previously, in a fast-evolving market like the AI space, there's bound to be quite a bit of volatility. Companies that exist today may ultimately go bust and newly emerging brands may yet become major players in AI's future. Exchange-traded funds and other index-tracking funds reduce the chance of losing your investment entirely if a brand shutters, or seeing value severely reduced if a competitor scores a major achievement first. These are crucial additions to any investment portfolio aimed at capitalizing on this emerging technology. Unless you're a seasoned professional who works within the field — and therefore can make wholly informed stock picks that take into consideration funding levels, personnel at individual companies, and more — an index opportunity is a must-have addition that rounds off the sharp edges of risk.