Investing in AI: A Guide for New Tech Investors
Investing in technology can be daunting, especially when it comes to something as complex as artificial intelligence (AI). However, just because AI is intricate doesn’t mean you need to be an expert in algorithms to make smart investment choices. Understanding how AI can drive business success is key. Here’s a guide to help new tech investors navigate the world of AI investing.
Understanding AI and Its Business Potential
Artificial intelligence is a broad field with many applications across various industries. To invest wisely, you don’t need to dive into the technical details of AI algorithms. Instead, focus on how AI contributes to a company’s bottom line. For instance, consider how AI can enhance a company’s products or services and whether it presents a profitable opportunity.
Recent market fluctuations highlight why understanding the business impact of AI is crucial. For example, in August, the Nasdaq experienced a sell-off when Amazon’s earnings fell short despite its heavy investment in AI. Similarly, Microsoft’s shares dropped due to weak cloud revenue, though the company expects growth to rebound in 2025. Short-term market movements don’t necessarily reflect the long-term potential of AI. If you understand a company’s AI strategy and its business model, you can better weather these ups and downs.
Starting Your Investment Journey in AI
For newcomers to the tech space, there are several ways to get started with AI investments:
- Invest in Established AI Stocks: Begin with companies that have a clear and visible impact from AI. Major players like Nvidia and Broadcom are good examples. These companies are leading the AI hardware market, providing the essential components for AI development. Investing in them is akin to buying “shovels in the gold rush,” capitalizing on the growing demand for AI technology. However, keep in mind that individual stocks can be volatile and high-risk.
- Consider AI-Themed ETFs: Exchange-traded funds (ETFs) offer a way to gain exposure to a broad range of AI stocks. For example, the Global X Artificial Intelligence & Technology ETF (NASDAQ) includes 84 AI-focused companies. By investing in this ETF, you diversify your investment across various firms involved in AI, reducing individual stock risk. The AIQ ETF charges a 0.68% expense ratio, covering management and brokerage costs.
The Risk and Reward of AI Investing
AI technology comes with its own set of risks and opportunities. The sector is known for its volatility and rapid innovation, where new entrants can quickly disrupt established leaders. For example, Apple transformed the smartphone market in 2008, and AMD overtook Intel with its advanced processors. To mitigate the risks associated with technological disruption, diversify your investments across different AI assets.
Top AI Coins to Watch
If you’re interested in cryptocurrency, several AI-focused tokens are worth considering:
- Near Protocol (NEAR): NEAR Protocol is a high-performance blockchain designed for speed and scalability. With growing market interest, NEAR is positioned for potential gains, especially with its upcoming launchpad token.
- Fetch.ai (FET): Fetch.ai is part of a broader alliance creating decentralized AI solutions. It allows users to create AI agents for various applications, potentially transforming industries and attracting significant investment.
- Matrix AI Network (MAN): Matrix AI Network integrates AI with blockchain technology to enhance security and efficiency. Its innovative approach makes it a compelling investment in the evolving blockchain space.
- Akash Network (AKT): Akash Network offers a decentralized cloud computing marketplace, connecting those with surplus computing power to those in need. Its native token, AKT, supports the network’s operations and pricing.
- Render (RNDR): Render focuses on decentralized, GPU-powered rendering for digital content creation. It provides high-performance computing for artists and developers, with significant implications for gaming and virtual reality.
Building Financial Literacy for Young Investors
Investing wisely isn’t just about choosing the right stocks or tokens; it’s also about managing your finances effectively. As Larisha Naidoo of Anglo American Zimele notes, young people entering the workforce often need guidance on managing their earnings. Financial literacy can be a game changer, helping individuals prioritize spending and saving wisely.
Is it legal to use AI to make money?
Yes, it is legal to use AI to make money. While the content created by AI is based on human input and training data, the AI itself generates results that are unpredictable. This means that the content isn’t considered “created” by a person in the traditional sense, but it is still legal to use it for business purposes.
Conclusion
Investing in AI can be a lucrative endeavor, but it requires careful consideration and a solid understanding of how the technology impacts businesses. Whether you choose individual stocks, ETFs, or AI-focused cryptocurrencies, being informed and prepared for the associated risks will help you navigate the tech investment landscape successfully.
