Artificial Intelligence (AI) is coming, and there is no stopping it. While the AI revolution is a boon to mankind, it poses a significant risk as we explore the lengths and breaths of this tech. How far can AI go? Will it pose security concerns? While these grey areas pose a risk for AI investors, its potential to change how we live and work is too good an opportunity to let go. How can you, as an investor, harness the AI potential safely?
Things to consider when investing in the AI revolution
Every new technology revolution comes with many unknowns. In 1999, the internet revolution kicked in. Many companies sprung up to monetize the internet boom. Investors knew little about the potential of the internet and invested in anything that was dot.com. Most companies could not live up to investor expectations, bursting the dot.com bubble.
Even the big names like Intel and Amazon, which had grown tremendously in the 90s, lost 80 to 90% of their value in the dot.com bubble. While Amazon breached its dot.com bubble peak in seven years, Intel never reached its 2000 peak. You can use the learning from the dot.com bubble and invest in the AI revolution with caution.
Before investing in AI, understand that, like the internet, AI is not a sector or a specific tech model. It is a support system that gives the computer the intelligence of a human to learn, adapt, reason, recognize patterns, solve problems, and make decisions. Your AI assistant and chatbot learn about your likes and dislikes and perfect themselves. AI can have various applications, from content creation (learning and e-commerce) to driving, surveillance, and robotic automation. Thus, when investing in AI stocks, understand how the company plans on using the tech to earn money.
The risk of investing in the AI revolution
Many companies have adopted AI and are testing its potential. It will take time for AI to reflect in the fundamentals. Some will be able to monetize and grow, and some may not. It is a challenge to identify stocks that can succeed in AI.
As Warren Buffett says, “Risk comes from not knowing what you are doing.” You can reduce your risk by diversifying investments across the AI supply chain – hardware (semiconductors and electronics), software (AI chatbots), applications (e-commerce, self-driving, cybersecurity, and more), and other AI offerings.
Safe ways to invest in AI
However, investing in individual stocks is risky. A safer way to get exposure to the AI revolution is through thematic ETFs. The Global X Artificial Intelligence & Technology ETF (NASDAQ:AIQ) invests in the AI supply chain. It invests in companies that provide AI hardware and those using AI to enhance their product and service offerings. AIQ’s holdings range from hardware companies like Apple and IBM to software firms like Adobe and Meta Platforms.
The ETF’s top holdings are tech giants with strong fundamentals and a moat in the tech space. They have the resources to experiment with AI and facilitate widespread adoption. The AIQ ETF can give you a good blend of AI adoption in the tech space. However, the ETF has a high management fee of 0.68% since it is a fund with a niche theme. While it can help you invest in all AI-related stocks safely, you may not be able to get windfall gains like Nvidia from the AI revolution. However, a well-diversified ETF will help you ride the overall AI wave.
Direct AI stocks
Other than AI ETFs, you could also consider investing in resilient growth stocks that are testing AI to enhance their offerings. Shopify (TSX:SHOP) stock could give you exposure to AI in e-commerce with its AI offering Magic Tools.
Shopify Magic tools help customers use AI to write product descriptions, beautify the product image background, provide an AI chatbot to help solve customer queries, and use AI for more targeted affiliate marketing. At present, the company is offering this AI tool to merchants for free, with access to different features depending on subscriptions.
It is too early to understand how AI will generate revenue and profits for Shopify, but it could be a paid feature in the future.
