What are AI Stocks, What are the Best AI Stocks?
Artificial Intelligence (AI) applications have been around for many decades. As early as the 1950s, chess programs were pitting machine intelligence against human intelligence. AI is by no means a new phenomenon. It has simply taken on an industrial scale.
It’s no surprise that AI stocks are now highly sought after in today's investment circles, as traders look to get a piece of what is arguably the decade's most game-changing industry. AI's broad reach, touching everything from healthcare and finance to entertainment, is revolutionizing not just the way companies do business but also how investors are approaching investing.
However, investing in AI companies isn’t as easy as it sounds. This fast-paced arena, filled with breakthroughs and shaped by both industry giants and up-and-coming players, requires some homework. That’s why our experts at Arincen have written this AI investing guide. We are here to demystify the sector, helping you make sense of the buzz and complexity.
A Brief History of the Rise of AI in the Global Economy
The rise of AI in the global economy is nothing short of a revolution! Consider this, from AI's humble beginnings in research labs to becoming the backbone of innovation across various sectors, it’s been quite a journey. Here are some key milestones.
The AI Revolution
ChatGPT didn't happen overnight. It and other AI programs were fueled by hefty investments in AI research, significant breakthroughs in machine learning, and the rapid expansion of data. These elements have catapulted AI from a niche technology to a major force driving operational efficiency, spawning new products and services and unlocking market opportunities that were previously unimaginable. We're now looking at a future where AI isn't just an addition to the economic landscape but a fundamental part of it.
Decoding AI Stocks
When we talk about AI stocks, we're referring to companies for which AI is the bread and butter of their business models, products, or services. This includes the big names in tech that are leveraging AI to enhance everything from cloud computing to search engines, as well as the trailblazing startups that are pushing the boundaries of AI in fields like drug discovery and autonomous driving.
Whether it's a company that's all in on AI or a tech veteran integrating AI into its repertoire, these stocks share a common thread: their reliance on AI as a key driver of growth and innovation. This focus on AI is what sets them apart, highlighting the technology's critical role in their success. Having said that, you could be forgiven for thinking that absolutely everyone who is anyone is investing heavily in AI. We’ll try to make sense of true AI stocks and all the others.
Why AI Stocks Are Key for Investors
AI stocks are increasingly taking center stage in the investment world, offering an excellent blend of growth potential and critical mass. Here's why they're catching investors' eyes – AI's knack for disrupting traditional industries and birthing new ones offers tantalizing growth prospects. You can probably think of jobs within your very own industry that have been affected by AI.
Being at the forefront of tech innovation makes AI stocks a hot ticket for anyone looking to get in on what’s new in the investment world. The variety within the AI investment landscape, from established powerhouses to innovative startups, gives you the flexibility to shape your portfolio around your risk tolerance and growth goals.
By diving into AI stocks, you have a prime opportunity to harness the transformative power of AI, positioning yourself to reap the benefits of the technology shaping our present and future.
Understanding AI Stocks
So, what makes an AI stock? Identifying an AI stock involves recognizing companies whose growth and valuation are closely tied to the development and application of AI technologies. One obvious example of an AI stock in the news is Nvidia. We’ll identify some more firms later in the article.
Hallmarks of AI Stocks
These firms leverage AI to enhance their products, streamline services, or introduce groundbreaking solutions that challenge traditional market norms. One example of a pure AI stock is C3.ai. This software-as-a-service (SaaS company) sells software that allows companies to deploy large AI applications. You could hardly find a more AI-centric company if you tried.
The Transformative Role of AI in Industries
AI is significantly altering industry landscapes, streamlining operations, refining decision-making, and offering personalized customer interactions. In healthcare, AI's role in diagnostics, patient care, and drug development is transforming treatment methods and patient outcomes.
Finance sees AI reshaping asset management, enhancing fraud detection, and improving customer interactions, while the automotive sector is undergoing a shift with AI's integration into autonomous driving technologies and redefining safety and mobility concepts. An example of this type of firm in the automotive sector is Waymo, a Google company that focuses on AI-enabled autonomous driving technology.
Differentiating AI Stocks from Traditional Tech Stocks
AI stocks and traditional tech stocks differ primarily in their foundational elements and growth catalysts. Traditional tech stocks encompass a broad spectrum of firms involved in various aspects of technology, including hardware, software, and digital platforms.
In contrast, AI stocks specifically relate to companies deriving substantial value from artificial intelligence technology. Further, AI stocks are characterized by significant R&D investments in AI and machine learning, revealing a deep commitment to harnessing these technologies for future expansion. This focus on AI not only distinguishes it from the broader tech market but also presents a distinct investment profile, where you can expect potentially higher growth and risks due to the fast-evolving nature of AI.
Why Invest in AI Stocks?
Two words: growth potential. The allure of AI stocks lies in their remarkable growth potential. However, there are more reasons and we’ll describe them next.
Market Projections of AI
As AI continues to mature, its influence is expected to stretch across more industries, fundamentally changing how businesses operate and deliver products and services. This isn't about mere incremental changes, but a potential leap in productivity and innovation across the board.
Experts are forecasting that by 2030 AI could add as much as $15.7 trillion to the global economy, with key sectors like healthcare, automotive, and finance poised for significant transformations. These projections make AI stocks a no-brainer for investors eager to tap into technological advancement and the companies driving it.
Diversification is Key
We can’t say it enough. Diversification is key for every investor. Diving into AI stocks opens up unique diversification opportunities for your investment portfolio. Investing in AI stocks means getting a slice of the future across the technological, healthcare, financial, and consumer goods sectors, to name a few.
This stock diversity not only broadens your investment horizon but also helps spread the risk, offering a more balanced exposure to the dynamic AI growth story. Plus, the inherently innovative streak of AI-centric companies can serve as a buffer against traditional market downturns, potentially putting you in a space to ride out bear markets.
Important Sectors for AI Stocks
Some sectors are better positioned to embrace AI because of the research-heavy nature of their operations. Here are some of the main sectors you can research as you try to get in on the game.
Tech and Software
In the tech and software world, AI is currently the captain of the ship, steering innovation and growth. AI makes algorithms smarter, data analytics sharper, and software solutions more intuitive. From cloud services to cybersecurity, data management to SaaS products, AI is everywhere, adding a layer of intelligence that transforms how services are delivered and experienced.
Healthcare
With the help of AI, doctors are getting better at diagnosing illnesses, personalizing treatments to our genetic makeup, and even assisting in surgeries with a level of precision that was once unthinkable. AI's role in sifting through mountains of data to uncover health trends and insights we couldn't see before cannot be overstated. AI isn't just about making healthcare faster, it aids us in making health services smarter, more accessible, and a lot more personal.
Insilico Medicine, a biotechnology company based in Hong Kong, combines genomics, big-data analysis, and deep learning for in silico drug discovery. In biology and other experimental sciences, an in silico experiment is one performed on a computer or via computer simulation software. AI is the perfect partner for a firm like this.
Automotive
From cars that can drive themselves to systems that predict when your car needs a tune-up, AI is at the wheel. AI is enhancing every aspect of driving, from helping avoid accidents to making your commute more enjoyable with personalized features.
The leap toward vehicles that can think and act autonomously is changing the very idea of mobility, promising a future where getting from A to B is safer, smoother, and more efficient. Argo.ai is a US-based company that wants to “reimagine the human journey.” Working with leading automotive manufacturers, such as Ford and Volkswagen, Argo.ai’s software contains highly detailed 3D maps capable of safety and street awareness, such as the ability to decipher traffic signs and speed limits.
Finance
In finance, AI is transforming everything from how transactions are made to how customer service is delivered. Imagine machines that can trade stocks in milliseconds or algorithms that can sniff out fraud before it happens. As an investor, you should already know a little bit about electronic advisors (EA) and autonomous trading bots, these are all AI-enabled.
Leading AI Stocks to Watch
When you're eyeing AI stocks, you're essentially looking for companies that are set to grow, innovate, and stand strong in the face of market whirlwinds.
How to Spot the AI Stocks that Matter
One of the main things to watch with these types of stocks is market capitalization. This is essentially a measure of how much the market values the company. It's a good hint at the company's weight and stability in the market.
Next, you should be looking at signs of innovation that show companies that are pouring resources into R&D to raise their AI game. You should also be paying attention to other markers, like revenue growth and debt levels.
By now you should have guessed that investing in AI stocks is not a passive exercise. You must conduct your research to stay on top of the latest moves.
Big Tech is a Good Place to Start
When we talk big tech, names like Alphabet’s Google, Amazon, and Microsoft are what we mean. For good reason. These market behemoths are at the forefront of AI development because they have the money to invest in these vastly expensive research projects, and they are fiercely competitive with each other. If you want a soft entry into the AI space, investing in big tech companies can be a good space to start.
Here are some of the ways just a few big tech companies are running with AI:
Google: With projects from cloud AI to driverless cars with Waymo, and cutting-edge health tech, Google's AI projects are boosting everything from ads to cloud computing, fueling steady financial growth.
Amazon: This major e-commerce company is using AI to streamline shopping and delivery, not to mention powering conversations with Alexa. This AI push is making its operations more efficient and expanding its territory in cloud computing and AI gadgets.
Microsoft: By blending AI into everything from cloud services to productivity tools, and making moves like buying GitHub and partnering with OpenAI, Microsoft's AI strategy is turbocharging its revenue.
Pure AI Companies
For years, Nvidia did excellent work in the chip space, but it was very much a member of the supporting cast. Its products drove the producers of big tech names like Apple and Google. It was also well known in the gaming world. Since the AI boom, Nvidia especially has become the darling of the stock market.
Now, the company's sought-after chips are driving AI solutions across the board, from cars to healthcare. Nvidia has consequently become wildly profitable. However, Nvidia is not the only pure AI company out there, which is an exciting place to be as an investor.
The Startups Shaking Things Up
Many AI startups are fresh on the scene but are already making waves with their IPOs or getting ready to hit the stock market. These companies play in a wide variety of fields, like finding new drugs or making fintech smarter, and their rapid growth and unique angles are turning heads. You would need to keep your finger on the pulse of their activities, but if you back a good horse early, you could profit later.
Investing Strategies for AI Stocks
When you start investing in AI stocks, it's good to know the strategy you will be employing before you get started. Here are some of the most common investing approaches:
Long-term vs. Short-term Investment Strategies
Long-term investors are all about playing the long game. They likely understand the role of AI in the present and the future and are willing to take a positive view of AI's big-picture potential. If you are one such investor, you would be happy to invest your money with the intention of riding the AI wave for years, even decades.
This strategy isn't for the faint of heart. You need to have a solid grasp of where AI is headed and the patience to stick it out through the market's ups and downs. This is where fundamental research comes in. Is the sector fundamentally sound, and will it be here to stay? These are questions you need to be asking yourself, as well as conducting some sound research, of course.
On the other hand, a short-term strategy is about making moves based on the here and now—reacting to the latest product launches or earnings reports. For this type of investing, you should be carrying out technical analysis, which is the study of a firm’s financials and earnings reports. While it can be thrilling, and potentially rewarding, it's a higher-stakes play that demands constant attention.
Diversifying Your AI Investment
Diversification is the superpower that every investor should know about. It applies in a big picture sense – you should be investing in stocks, FOREX, commodities, and other types of financial assets to hedge your bets. It also applies in a small picture sense – when you invest in AI, think healthcare, automotive, finance, and more to avoid the domino effect if one sector hits a snag.
Mixing it up between the big, stable tech giants and the more adventurous startups can also give your portfolio a good balance of security and growth potential. Don't forget about spreading your investments geographically, too. Tapping into AI companies from different corners of the globe can shield you from region-specific risks. In this article, we’ve mentioned AI firms from different countries. That is just scratching the surface as AI is a truly global revolution.
AI ETFs and Mutual Funds
If you are one of those investors who want to have a slice of the action but just don't have the time to dissect every company's AI strategy, AI-focused ETFs and mutual funds could work for you. These funds bundle up a variety of AI stocks, from the heavyweights to the newcomers, thus giving you exposure to all sides of the market. Remember also that investing this way means you are handing the reins over to fund managers who understand how to navigate the tech sector's complexities.
Risks and Considerations
Investing is inherently risky. No type of financial speculation is risk-free. The best way to manage risk is to understand it and place appropriate guardrails that will protect you.
Navigating the Challenges in the AI Sector
While the AI landscape is brimming with potential, there are still some elements to which you need to pay attention. Up first are the regulatory hoops. With governments around the globe trying to wrap their heads around AI's impact on privacy, data security, and jobs, we're seeing a tighter leash on what AI can and can't do. Already, the EU enacted sweeping AI legislation in 2023, with many other jurisdictions sure to follow.
These regulations could make it tougher for some AI applications to take off, and increase the costs of companies trying to comply, which can put the brakes on innovation and hit the bottom line. There is also the ethical maze – issues like AI bias, how transparent AI decision-making is, and the use of AI in sensitive areas like surveillance is likely to impact many AI products and firms.
Always Stay Informed
We’ve already shown how investing in AI demands constant attention. For any investor wanting to perform self-directed investing in AI, staying on top of tech advancements and market shifts is non-negotiable. The AI field is moving at breakneck speed, with new tech, uses, and business strategies popping up all the time.
Keeping track of these changes can help you make smarter moves. It's also crucial to understand where consumer demand is heading, what regulatory changes might be on the horizon, and how the competitive landscape is changing. Always stay informed and stay close to industry news, digest research reports, and join tech forums if you can. Another great way of staying informed is by interacting with fellow traders on the social forums of sites like en.Arincen.com. Just be sure to not take what other traders say as gospel – you must conduct your own research!
Some of the Best AI Stocks
1) NVDA
2) MSFT
3) TSM
4) META
5) AMZN
6) AAPL
7) ASML
8) ARM
9) AVGO
10) GOOGL
As we have said, there are many AI stocks out there. You should always do your research to find out which ones work best for you. However, to get you excited about investing in AI stocks, we’ve listed some of the most well-known in the world today:
NVDA (NVIDIA):
The chipmaker and current darling of the world of stocks focuses on the design and manufacture of graphics processing units (GPUs) for gaming and professional markets, as well as system-on-a-chip units (SoCs) for the mobile computing, automotive market, and general tech market. It has recently also entered the healthcare space.
MSFT (Microsoft):
A leader in the technology sector, MSFT specializes in software, consumer electronics, personal computers, and related services. Best known for its Microsoft Windows operating systems, Office suite, and Azure cloud services, it's regarded as one of the world's most valuable companies.
TSM (Taiwan Semiconductor Manufacturing Company):
TSMC operates in the semiconductor industry, focusing on manufacturing, selling, packaging, testing, and computer-aided design of integrated circuits and other semiconductor devices. It is the world's largest independent foundry and is considered highly successful due to its pivotal role in the global electronics supply chain.
META (Meta Platforms, Inc.):
Formerly known as Facebook, Meta operates in the technology sector with a focus on social media services, virtual reality, and augmented reality. Despite facing regulatory and public scrutiny, Meta remains a dominant player in the social media landscape.
AMZN (Amazon.com, Inc.):
Amazon operates in the e-commerce and cloud computing sectors, originally starting as an online bookstore and expanding into a vast array of products and services. It's one of the world's most valuable companies, renowned for its disruption of well-established industries through technological innovation and mass scale.
AAPL (Apple Inc.):
Apple specializes in consumer electronics, software, and online services, best known for products like the iPhone, iPad, and Mac computers. As one of the world's most valuable companies, Apple is considered extremely successful, both in terms of financial performance and brand loyalty.
ASML (ASML Holding NV):
ASML is a leading company in the semiconductor industry, focusing on the development and manufacturing of photolithography machines used in the production of computer chips.
ARM (Arm Holdings):
Operating in the semiconductor and software design sector, ARM specializes in the design of ARM processors and other technologies used in electronic devices. Although it's a private company and doesn't trade publicly, ARM is considered highly successful and influential due to the widespread use of its architectures in smartphones, tablets, and other devices.
AVGO (Broadcom Inc.):
Broadcom operates in the semiconductor and infrastructure software solutions sectors, providing a wide range of products for data center, networking, software, broadband, wireless, and storage and industrial markets.
GOOGL (Alphabet Inc.):
Alphabet, the parent company of Google, operates in the technology sector with a focus on internet services, artificial intelligence, consumer electronics, and cloud computing. As one of the most influential companies in the world, Alphabet is a powerful brand, pioneering many initiatives that have shaped the digital age.
Future Outlook of AI Stocks
Experts agree that AI is here to stay. Unlike contentious technologies like cryptocurrencies, you can hardly find an expert who does not think AI is today’s industrial revolution. This is all thanks to better computing power, smarter algorithms, and data analytics. AIs are only going to get more sophisticated.
What the Future Holds for AI
Many science fiction books and films over the decades imagined a scenario into which today’s world is heading. We are on the cusp of a deeply interconnected world where machines understand us better, learn quicker, and make accurate decisions on their own. Many experts contend that AI will only get better and expand its reach, becoming part of more industries, and weaving into our daily routines and business operations more seamlessly. Witnessing the sheer scale and speed of AI’s uptake, it’s hard to disagree.
New Sectors Ready for Disruption
With AI developments moving at full speed, whole sectors are ripe for disruption. Education is just one area where AI's impact could be game-changing. We could name any number of sectors, but we’ll talk about education for now.
It’s not just tech behemoths like Google, Microsoft, IBM, and Baidu creating thrilling AI-enabled products and repositories, it's also large education providers like Pearson and McGraw Hill providing AI-powered learning experiences. There are also several schools around the world implementing AI, such as MIT, which invested $1 billion in an AI college. There are also a host of Edtech AI startups, such as Riid, Cognii, Elsa, Memrise, and Alef, that have gained worldwide recognition.
Judging by this, entire sectors are being transformed by AI from the top down. So, when it comes to investing in AI, the outlook is pretty bright. AI is creating big leaps in productivity and entirely new ways of doing business.
For investors like you, this means a world of opportunity, not just in the tech giants leading the charge but also in start-ups across different sectors. AI's influence on future economies is huge, powering growth, sparking innovation, and even tackling some of society's biggest challenges with smarter automation and insights from data.
Conclusion
Now is the best time to get into AI stocks. The key difference between AI and traditional tech stocks lies in their growth potential and how AI companies are making significant R&D investments to harness these technologies for expansion. It’s an exciting time as an investor. However, remember that embarking on AI investment requires a nuanced approach. Diversification is important, as is fundamental and technical analysis, also known as simply staying in touch with the latest developments.
AI is poised to disrupt new sectors and will continue to weave into the fabric of our economies and societies. For investors like you, this means understanding AI, its applications, and its implications. If you do this, as well as remaining vigilant to the regulatory shifts in the AI landscape, there’s no reason you can’t succeed in this area.
