4 strategies for investing in AI stocks

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Weigh the risks and rewards.

© Yury Kisialiou, zinkevych/stock.adobe.com; Photo illustration Encyclopædia Britannica, Inc.

Are you curious about artificial intelligence as an investment opportunity? Generative artificial intelligence tools such as ChatGPT helped push AI into the mainstream, but the investment story now stretches far beyond chatbots and start-ups. Companies across the economy are building AI features into their products and services, while others are supplying the chips, cloud infrastructure, and data centers powering the boom.

The rapid growth of artificial intelligence, coupled with high performance expectations for the sector, means that the price performance of AI stocks may be volatile. In other words, the “hot money” has been chasing the AI market since the release of ChatGPT in late 2022, so a lot of future growth may already be priced into these stocks.

If you’re comfortable with the potential downside risk, but not sure how to best get exposure to AI, here are a few ideas to help you get started.

One way to get portfolio exposure to AI is by purchasing shares in large tech companies that are meaningfully engaged with large language models (LLMs). Your exposure to AI specifically may be somewhat diluted, as these companies have other business units with their own profit and risk profiles. But this approach can benefit investors who may be more risk averse.

Incumbent tech giants have established market positions and diversified revenue streams, providing stability for investors without compromising their ability to capture AI’s upside.

Not too surprisingly, these major tech companies are already heavily involved with building and distributing AI systems. Some have their own AI products that are designed for anyone to use; others are forming important partnerships; and another category of enterprises is providing the hardware and software for AI to flourish.

Several of the world’s largest tech companies are leading the AI build-out:

Another, arguably more direct way to add AI exposure to your portfolio is by purchasing shares in publicly traded companies that focus heavily on AI software and services. These are sometimes called “pure-play” AI companies because their businesses are closely tied to the growth of artificial intelligence. This strategy requires fundamental research to identify companies that interest you, but it may offer greater upside potential—along with greater volatility—if you pick the right stock.

But that’s a big “if”—which is why investing in individual AI companies requires you to pay attention. Industry trends, regulatory developments, and technological advancements are all relevant to you as an investor. You’re best positioned to make smart moves with your portfolio when you have subject matter expertise that you keep current.

To help jump-start your research, here are a few publicly traded companies focused heavily on AI software and automation tools. Their platforms are designed to help businesses analyze data, automate workflows, and build AI applications for industries ranging from banking and health care to manufacturing and energy:

There are certainly others, and the list keeps growing as companies rush to build AI products and services. But remember: AI remains a fast-changing and highly competitive industry. Some companies have translated AI demand into rapid revenue growth, while others are still trying to prove their business models and justify lofty valuations.

If you’re interested in AI but not excited about adding more technology companies to your stock portfolio, then you can consider investing in companies across diversified industries that are using artificial intelligence to innovate. Here are a few of the top sectors and industries:

If choosing individual stocks isn’t appealing, you can also invest inexchange-traded funds (ETFs) with an AI focus.

AI-focused ETFs typically hold a mix of companies tied to artificial intelligence, semiconductors, cloud computing, robotics, automation, and other related technologies. Some well-known AI-focused ETFs include:

Investing in an ETF may be the most convenient way to gain AI exposure, but not every fund is equally focused on AI. Some ETFs hold companies with only limited ties to artificial intelligence, so research the fund, paying special attention to its top holdings, before investing. And because fund holdings tend to shift over time, be sure to check in periodically to make sure your investments still fit your objectives and risk tolerance.

Artificial intelligence is already reshaping industries across the economy, but that doesn’t mean every AI investment will succeed. Some companies are building the technology, others are supplying the infrastructure, and many more are trying to use AI to improve their businesses. The challenge is figuring out which approaches will create lasting profits—and which are just riding the hype cycle.

This article is intended for educational purposes only and not as an endorsement of a particular financial strategy, company, or fund. Encyclopædia Britannica, Inc., does not provide investment advice.