The more recent artificial intelligence revolution that kicked off between 2021 and 2022 following the introduction of generative AI applications and large language models from companies has drawn the attention not only of the general public but also of individuals and organizations interested in capitalizing on the current and further future developments in the field. The potential of AI to usher in a new era of industrial revolution is enticing. Hence, in consideration of this prospect, the questions of how to invest in artificial intelligence and where exactly to invest have become one of the more endearing inquiries within the investment community.
A Definitive Guide to Investing in Artificial Intelligence
How and Where to Invest in AI? What AI Companies to Look For?
Understanding the Emerging Artificial Intelligence Industry
Investing in artificial intelligence means investing in specific companies directly involved in AI technologies and other business organizations that have drawn value from developing or using artificial intelligence systems. It is imperative for investors to understand this first before they start investing in AI or selecting which AI companies to invest in.
Furthermore, considering that it is part of the tech industry and is becoming an industry of its own, it is also important to note that not all companies involved in AI are the same. The whole AI industry is characterized by the participation of different companies from different backgrounds offering different propositions. Take note of the following:
• Research Companies: AI21 Labs, Anthropic, Google DeepMind, Hugging Face, and OpenAI are considered profit-oriented AI research laboratories involved in developing or training and deploying or commercializing AI models and AI systems. Other tech companies like Adobe, Apple, Meta Platforms, Microsoft, and IBM have departments or teams that are also involved in training and deploying models and systems.
• Specialized Companies: Other research companies have a dedicated or specialized focus on a particular subfield or domain of artificial intelligence. Symbotic produces robotic warehouse automation solutions and AeroVironment is involved in designing unmanned vehicles and automated aircraft. Veritone deploys machine learning models for enterprise clients and SenseTime is focused on computer vision technologies
• Hardware Manufacturers: There are also other companies involved in designing and producing the hardware requirements or processors needed for training AI models and running AI systems. The most notable ones are AMD, Nvidia, and Intel. Graphcore and Cerebras Systems are other examples. Apple, Google, Qualcomm, Samsung, and TSMC also develop AI accelerators to complement their value chains.
• Dedicated Service Providers: Another type of artificial intelligence company includes technology infrastructure and platform providers. One of the notable examples is Amazon Web Services which provides cloud-enabled hardware and models that enable other companies to train or deploy systems without owning a tech infrastructure. Alibaba, Cognizant, Nvidia, and IBM also offer platforms for enterprise clients.
• Wrapper Companies: Canva, Grammarly, Jasper, and Perplexity are considered AI wrapper companies because they have built services or provided specific digital products based on existing models or systems of AI research companies. Most of these companies are startups. Some like Quora and Microsoft have dedicated departments for delivering complementary AI-based services using other models and systems.
• Venture Capital Firms: Another type of companies involved in AI involves venture capital firms. These companies are not directly engaged in developing and deploying AI models and AI systems. They provide capital for promising startups and even established tech companies. Examples include Andreessen Horowitz, Sequoia Capital, Softbank Group, Intel Capital, Two Sigma Ventures, and Institutional Venture Partners.
Choosing Which Artificial Intelligence Companies to Invest In
It is important to reiterate the fact that it is first important for interested investors to understand first the composition of the entire AI industry and market or familiarize themselves with how the industry works. Not all companies that have branded themselves as involved in the current AI revolution are worthwhile investments. Some are also either too private and closed from outside investors while others do not provide accessible channels for investments.
The question of how to invest in artificial intelligence boils down to knowing which companies have pivotal roles in the current AI revolution and offer accessible channels for investments or are looking to raise capital in the capital markets. Nevertheless, in looking for artificial intelligence companies to invest in, it is important to look at their fundamentals. This requires some methods in fundamental analysis. Take note of the following characteristics:
• Significant Artificial Intelligence Product: One of the most important criteria in selecting which artificial intelligence companies to invest in is their products. These products could be an AI model or AI system, a range of AI hardware like processors or accelerators, or an infrastructure or platform. Furthermore, these products should also be differentiated, able to address an existing or future market need or have a great product-to-market fit, or have the potential to disrupt existing industries and markets.
• Differentiation or Competitive Advantage: An investor should also ask several questions before investing in a prospective AI company. What makes its approach different and better than direct competitors or substitutes it intends to replace? Does it have the required technological capabilities like a talent pool and moat or technological infrastructure to come up with innovative products? What protection does it have under its arsenal that prevents others from developing and delivering a similar product?
• Strong Financial Standing and Fundamental: Furthermore, like in all decisions that involve investing in companies, suitable artificial intelligence companies should have outstanding financial performance and reliable corporate governance. Some indicators include designation as growth stocks, mid-cap to large-cap stocks, or value stocks. It is understandable for startups or smaller companies to lack a demonstrated financial standing but they can be evaluated based on their financial statements.
• Competitive Management and Talent Pool: The prospective AI companies should also be heralded by a competent management team that can create a vision and drive the rest of their people toward fulfilling this vision. The talent pool or workforce should also be composed of experienced researchers, engineers, and data scientists. The marketing team should also be capable. It is important to note that AI companies are tech-driven organizations and they should be populated by technical people.
• Addressable Market or Market Validation: In addition, similar to product positioning and competitive advantage, investing in artificial intelligence should also be paired with a strong understanding of what it can bring. Suitable AI companies to invest in should be targeting companies with a large and growing market or potential customer base. A large market provides higher potential for returns. Their products should also be able to address an actual need or that the market opportunity is realistic and logical.
Research companies like Anthropic and OpenAI are promising. They have shipped AI models that are influencing the current direction of the artificial revolution. However, considering that they are not publicly traded companies, at least for now, there is no direct vehicle to invest in them. The best chance for investors to hop on the ongoing revolution is to invest in larger public tech companies that are involved in AI in one way or the other.
The best chance to invest in artificial intelligence is to look for large-cap stocks like Amazon, Google or Alphabet, Microsoft, and Nvidia. Amazon remains one of the largest providers of enterprise-class cloud computing services. Google has rolled out numerous AI models and AI hardware. Microsoft has partnered with OpenAI and has also been deploying its own AI systems. Nvidia is the largest provider of AI hardware in the world.
Others are also either benefitting or are poised to benefit from AI. Tesla has its internal AI research department dedicated to launching fully autonomous vehicles. TSMC is the largest pure-play semiconductor manufacturer that services chipmakers like Qualcomm and MediaTek. C3.AI is a platform provider focusing on turnkey enterprise AI applications. Apple and Samsung are set to benefit from AI applications across their respective product lines.
Specific Options for Investing in Artificial Intelligence Companies
The most direct option to invest in artificial intelligence is to buy stocks from involved large tech companies. This generally involves the same way as how most investors invest in the stock market or go through traditional or online stock brokerage firms or trading platforms. Take note that the U.S. stock market has a sizeable list of tech companies that are involved in artificial intelligence. This can be a good starting point. Companies like Amazon and Microsoft also offer direct stock purchase plans.
Another route to invest in AI companies is through specific exchange-traded funds. There is a handful of them. Some of the notable examples include Direxion Robotics, Global X Robotics & Artificial Intelligence ETF, Franklin Intelligence Machines, AIQ Artificial Intelligence & Technology, Roundhill Generative AI & Technology ETF, Fidelity Disruptive Automation, and ROBO Global Artificial Intelligence ETF. These ETFs are AI-themed and provide a lower-risk alternative to owning stocks.
