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Trading and Investing in Artificial Intelligence (AI)

13 minutes
Intermediate
Cristian Cochintu
Cristian Cochintu
13 June 2024

People trade or invest in AI to ride the wave of technological advancement that’s expected to take the twenty-first century by force. And the companies that are leading the charge could be set to experience rapid growth – if AI becomes everything that people currently think it will be.

The rapid pace of innovation in artificial intelligence (AI) has brought many experiences to reality that were previously only thought to be fiction. As AI continues to disrupt how we live and work, how can investors put money to work in this advanced technology that is quickly reshaping society? 

We’ve created this handy beginner’s guide to help you better understand what AI is and how companies use the technology. Plus, we’ve identified some popular investments in this fast-growing industry. 

How to Trade or Invest in Artificial Intelligence – Quick Guide 

  • Create a brokerage account: Trading lets you speculate on rising or falling prices with CFDs, investing lets you take direct ownership. 
  • Research companies: Explore information about what the company does, available financials, and details of future plans such as partnerships and product roadmaps. 
  • Take your position: Select investments that provide exposure to the artificial intelligence sector based on clear goals and your risk appetite.  

     

Or, if you want to get a greater understanding of the artificial intelligence (AI) sector before you take a position, continue reading our full guide. 

What is AI 

Artificial intelligence (AI) is a catch-all term to describe machine learning. While it may still feel like a concept from a sci-fi movie, most of us are already using AI in some shape or form. Digital systems that can predict, solve problems, and learn, without human intervention come under the umbrella term artificial intelligence (AI).  

It’s also sometimes considered a branch of data science, because creating AI applications depends on collecting and processing vast amounts of data to ‘train’ the algorithm that provides instructions for a machine to execute. 

AI is already being used to help in a range of different sectors, including healthcare, finance, car manufacturing, robotics, automation, education, and agriculture. 

How do companies use artificial intelligence? 

AI is created through machine learning, which involves training a system with huge amounts of data. It then uses the trained system to make inferences about new data it’s never seen. 

The simplest example is a system designed to detect objects in images. Images with those objects are provided to the system, which “learns” how to detect those objects in other images. The more objects in images it detects, the more accurate the detection system becomes. 

Companies employ artificial intelligence in two main ways.  

Many tech companies use AI to make their existing operations more powerful such as through high-profile applications, including robotics, self-driving cars, and virtual assistants. Google, a subsidiary of Alphabet (GOOG), uses AI to filter out spam for Gmail users. Amazon (AMZN) uses AI to recommend products to customers, while Netflix (NFLX) uses AI to guide content creation and recommendations. 

More recently, OpenAI's ChatGPT has shown how far "generative AI" a division of artificial intelligence that can generate texts, images, sounds, and ideas, has come. The potential of such large language models is enormous. 

Some companies also profit directly from AI by selling hardware, software, services, or expertise that the technology needs. These are true artificial intelligence stocks and include those listed and described in the next section of our guide. 

How to invest in artificial intelligence 

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

While the AI sector is still in its infancy, there are signs that it’s starting to mature. The sheer volume of publicly listed AI firms points towards a growing trend, while the creation of bespoke AI-based indices and index-tracking ETFs proves that there is increasing investor interest in the area. 

1. AI Stocks 

AI stocks generally refer to shares in companies that use artificial intelligence (AI) in the delivery of products, applications, or services. Few companies currently listed on the NASDAQ-100 technology index incorporate AI as a core part of their offering to customers. 

However, the economic impact of AI is expected to grow considerably as more businesses look for ways to embed AI in their operations. AI-enabled applications are being developed across varied industries including manufacturing, healthcare, finance, marketing, education, and resources. 

 

Best AI Stocks - Nvidia 

Nvidia is one of the best-known AI stocks, and it manufactures high-powered graphics chips that have a range of different uses. The company has been at the forefront of the self-driving car revolution, creating its own AI operating system for driverless cars, called Driveworks. 

The company was founded in 1993 to create graphics-based computer solutions, primarily in the growing video games market. Over the years, the firm has expanded the use of its graphics chips, using the technology to develop cutting-edge machine-learning APIs. 

As a result, Nvidia has been an early player in emerging markets such as self-driving cars, electric vehicles, and cryptocurrency mining. Nvidia stock is enjoying a solid uptrend and a massive post-earnings rally. 

Best AI Stocks - Nvidia

Best AI Stocks – AMD 

The semiconductor leader's processors play a vital role in powering the computing systems that make AI possible. AMD's broad product offerings have enabled it to make powerful friends among the tech elite. AmazonMicrosoftAlphabet, and Oracle all use AMD's chips in their cloud computing operations. So as more companies shift their business processes to the cloud, demand for AMD's products should grow. 

AMD also supplies custom processors for the leading game consoles, including Microsoft's Xbox Series X|S and Sony's PlayStation 5. Perhaps most interestingly, Microsoft is reportedly working with AMD to spur its AI processor development efforts. Microsoft wants to secure enough chips for its rapidly expanding AI business. It also wants to create a stronger competitor to Nvidia. Both of which are good for AMD. 

Like Nvidia, AMD is in a strong rally and is one of the most exciting AI stocks out there. However, both AI stocks and not only trade at dizzying prices to earnings multiples which signals a short-term overbought risk. 

Best AI Stocks – AMD

Best AI Stocks - Micron 

Micron began as a semiconductor design company in the 1970s, ultimately developing high-powered memory chips which can be used to provide AI solutions to smartphones and electric cars. 

In 2019, Micron acquired AI hardware and software startup Fwdnxt and launched the Micron Deep Learning Accelerator. Micron’s memory chip technology, paired with Fwdnxt’s AI capabilities, means that the company can develop the sort of deep learning solutions that are required for data analytics in emerging technologies, such as self-driving cars. 

Micron stock started a new uptrend after finally breaking the long-term resistance level of $65. 

Best AI Stocks - Micron

Best AI Stocks - Amazon 

Perhaps no company is using AI more widely than Amazon. Founder and executive chairman Jeff Bezos has been an evangelist for AI and machine learning. Although Amazon started as an online retailer, technology has always been at the company’s core. 

Today, Amazon uses artificial intelligence for everything from Alexa, its industry-leading voice-activated technology, to its Amazon Go cashier-less grocery stores, to Amazon Web Services Sagemaker, the cloud infrastructure tool that deploys high-quality machine learning models for data scientists and developers. 

Amazon’s e-commerce business is also built on AI since algorithms run its top-flight recommendation engines for e-commerce and video and music streaming. In addition, Amazon uses AI to determine product rankings. 

Best AI Stocks - Amazon

Best AI Stocks - Microsoft (MSFT) 

Microsoft has been investing in OpenAI, the company that developed ChatGPT, since 2019. The partnership began with a $1 billion investment and the agreement that Microsoft exclusively would provide cloud computing services to the AI lab. In January 2023, Microsoft announced it would extend the OpenAI partnership into a “multiyear, multibillion-dollar investment.” 

Microsoft also has a stated goal to make AI technology universally accessible through its Azure cloud computing platform. And, like Alphabet, Microsoft recently debuted an AI chatbot for its search engine Bing. Unfortunately, Bing’s chatbot also failed the accuracy test. As reported by Dmitri Brereton, the chatbot misstated financial information pulled from Gap and Lululemon quarterly reports. 

Microsoft is one of the best stocks in 2023 with its share price up almost 40% and one of the AI stocks of the future.  

Best AI Stocks - Microsoft (MSFT)

Best AI Stocks - Palantir (PLTR)

Palantir operates AI data mining platforms for government agencies and enterprise businesses. Gotham, Palantir’s government platform, finds patterns in disparate data so intelligence teams can locate and respond to terrorism threats. Unconfirmed sources say Gotham played a role in capturing Osama bin Laden in 2011. 

Businesses use Palantir Foundry to house, transform and manipulate organizational data to streamline processes and make better decisions.  

Palantir gained 60% in the first half of 2023, which makes it one of the best AI stocks to consider. 

Best AI Stocks - Palantir (PLTR)

Best AI Stocks - Adobe Systems (ADBE) 

Adobe makes software for content creation, marketing, data analytics, document management, and publishing. Its flagship product, Creative Cloud, is a suite of design software sold via subscription. 

In 2022, Adobe announced new AI and machine learning (ML) capabilities in its Experience Cloud product, a marketing and analytics suite. These advancements include predictive capabilities that help sales and marketing teams understand how the different facets of marketing campaigns affect customers' buying decisions. They can use that information to optimize campaigns and their budgets. 

Adobe gained 20% in 2 weeks and looks set to test the all-time highs during the summer and can be considered another top AI stock for investors. 

Best AI Stocks - Adobe Systems (ADBE)

Best AI Stocks - IBM 

This legacy tech company is an integrated provider of hardware, software, and services to large enterprise customers. Its mainframe computer systems are still ubiquitous in certain industries, and it regularly signs multi-year technology deals worth hundreds of millions of dollars each. 

IBM’s strategy with AI is to apply the technology in ways that augment human intelligence, increase efficiency, or lower costs. In the healthcare industry, IBM’s AI technology is being used to create individualized care plans, accelerate the process of bringing new drugs to market, and improve the quality of care. 

IBM is a complicated company undergoing transformation, and AI is far from its only growth opportunity. But if you’re looking to invest in an AI stock that is well-positioned to benefit from the Artificial Intelligence boom, IBM might be a good choice. 

Best AI Stocks - IBM

Note: Because AI is an emerging technology that is still being developed, companies focused on AI may be relatively untried, not highly profitable, or susceptible to disruption by competitors. As a result, AI stocks’ share prices may be more volatile. Investors need to weigh up the risks based on a clear understanding of a company’s long-term prospects. 

 

2. AI ETFs 

You can invest in companies that build AI hardware, develop AI solutions, or sell AI development tools. Or you can invest in companies that use AI to make better products, improve their marketing or create efficiencies. But for those looking for broader exposure, exchange-traded funds (ETFs) offer an efficient and easy way to invest in AI stocks. 

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

Outlined here are some of the most widely owned AI ETFs. As you consider these options, make sure to review the fund’s prospectus to understand the investment strategy, holdings, and fees. 

 

Best AI ETFs - iShares Exponential Technologies ETF (XT) 

XT is a large-capitalization fund that targets the Morningstar Exponential Technologies Index. It selects global stocks advancing exponential technologies that have the potential for rapid disruption of their industries, including AI. Information technology stocks make up over half of the portfolio at almost 53%, followed by healthcare and industrials. 

The top holdings of this top AI ETF include shares of SoFi Technologies (SOFI), an online loan refinancing company; Class A shares of Coinbase Global Inc. (COIN), operator of a leading cryptocurrency exchange; and Class A shares of Meta Platforms Inc. (META), the social media and metaverse firm

Best AI ETFs - ROBO Global Robotics & Automation Index ETF (ROBO) 

The Robo Global Artificial Intelligence ETF was launched in May 2020 to track the ROBO Global Artificial Intelligence Index – an AI-focused index that was created by Robo Global in 2013. Like the WisdomTree Artificial Intelligence UCITS ETF, this fund offers access to a wide range of companies that work with AI in some form. 

The AI ETF's top three holdings are Harmonic Drive Systems, a Japanese maker of components for industrial robots, semiconductor manufacturing equipment, and other products; IPG Photonics Corp. (IPGP), a maker of fiber lasers; and Class A shares of Zebra Technologies Corp. (ZBRA), a mobile computing software and analytics company. 

Best AI ETFs - WisdomTree Artificial Intelligence UCITS ETF 

The WisdomTree Artificial Intelligence UCITS ETF aims to mirror the performance of the NASDAQ CTA Artificial Intelligence & Robotics Index. This index covers a wide spectrum of AI-focused and AI-adjacent firms, including companies that act as AI enablers, engagers, or enhancers. 

Best AI ETFs - Global X Robotics & Artificial Intelligence ETF (BOTZ) 

The Global X Robotics & Artificial Intelligence ETF (BOTZ) seeks to invest in companies that potentially stand to benefit from increased adoption and utilization of robotics and artificial intelligence (AI), including those involved with industrial robotics and automation, non-industrial robots, and autonomous vehicles. 

Best AI ETFs - Defiance Machine Learning & Quantum Computing ETF (QTUM) 

QTUM is a multi-cap global fund using the BlueStar Quantum Computing and Machine Learning Index as a benchmark. Companies in the index are involved in the research, development, and commercialization of quantum computing systems and materials. 

Note: Some ETFs that use AI as a tool for picking stocks are also sometimes referred to as AI ETFs. But this story focuses on ETFs targeting companies that use AI for other industries, such as robotics, automation, health care, and automobiles. 

 

Trading and Investing in AI Stocks and ETFs with CAPEX.com 

With us, you’ll be able to trade or invest in artificial intelligence stocks or ETFs. 

  • Stocks give you exposure to the market performance of different companies that are directly involved in the artificial intelligence sector like Nvidia, Amazon, IBM, and Microsoft 
  • ETFs are a basket of securities – usually the shares of multiple companies and certain indices like the Nasdaq 100 – that will give you diversified exposure to the artificial intelligence sector  

     

However, note that trading and investing are 2 different things, although there are similitudes. 

Trading’ lets you speculate on the price of a stock or other financial asset rising or falling using derivatives like CFDs. If you want to take a position on AI stocks or ETFs without owning them directly, then CFDs might be for you. 

Bear in mind that these are leveraged products, which means they enable you to get full market exposure for an initial deposit – known as margin. But, while leverage can increase your profits, it can also increase your losses. 

 

Investing’ means that you’re taking direct ownership of something with the aim to benefit from prices rising. You’ll be able to invest in the shares of individual companies that are involved in the artificial intelligence sector, or in ETFs to get broad exposure to AI. 

Leverage isn’t available when you’re investing, so you’ll need to commit the full cost of your position upfront. While this could increase your initial outlay, it also caps your maximum risk at the amount of money you paid to open your position. 

 

Summary 

There are endless ways to use machine learning in our day-to-day lives, which makes AI an incredibly innovative technology that is constantly progressing. 

AI stocks could benefit from the growth of related markets, such as self-driving cars or smartphone manufacturing, and offer a chance to be part of an exciting new industry.  

You can trade 2,100 CFDs on stocks, ETFs, and other assets, and invest in 5,000 stocks and ETFs with ownership via our award-winning trading platform – available on desktop or on the go with our mobile apps. 

     

Free Resources 

Before you start trading and investing in the best AI stocks and ETFs for your portfolio, you should consider using the educational resources we offer like CAPEX Academy or a demo trading account. CAPEX Academy has lots of free trading courses for you to choose from, and they all tackle a different financial concept or process – like the basics of analyses – to help you become a better trader or make more informed investment decisions.  

Our demo account is a suitable place for you to learn more about leveraged trading, and you’ll be able to get an intimate understanding of how CFDs work – as well as what it’s like to trade with leverage – before risking real capital. For this reason, a demo account with us is a great tool for investors who are looking to make a transition to leveraged trading. 

FAQs about AI Stocks

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Cristian Cochintu
Cristian Cochintu
Financial Writer

Cristian Cochintu writes about trading and investing for CAPEX.com. Cristian has more than 15 years of brokerage, freelance, and in-house experience writing for financial institutions and coaching financial writers.