How To Invest in AI: Strategies for New Investors

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Introduction To AI Investments

You can use artificial intelligence to earn money in many ways. But you might be interested in investing in AI to earn passive income from stocks. After all, the market is expected to grow by over 30%, or $237.4 billion, from 2024 to 2028, according to an analysis by Technavio. With such an optimistic outlook, you may be wondering how to invest in AI.  

How To Invest in AI: Step-by-Step Guide

Investing in AI can be daunting, especially for new investors. Here’s a step-by-step guide to get you started.

1. Select a trading platform, and open an account.
   • Brokerages like Fidelity and Schwab have commission-free trading and offer large selections of funds from many different providers.
2. Focus on building a diverse AI portfolio.
   • You can do this by investing in tech-focused ETFs and mutual funds, which give you exposure to many different companies.
   • You can also select a mix of individual stocks, perhaps investing in both hardware and software companies.
   • Also consider spreading your investment dollars across blue-chips like Apple and Microsoft for stability.
   • Keep in mind that smaller, more volatile stocks are risky but might produce larger gains.
3. Research companies before you invest.
   • You can find earnings reports and other filings in the investor relations sections of the companies’ websites.
   • Your brokerage should also have company research.
   • It’s a good idea to search for new reports about companies you’re considering investing in to learn about any recent developments that might affect their businesses.
4. To buy shares, call up the company or fund you want to purchase on the brokerage website and then select the “trade” or “buy” button on the investment page.

Types of AI Investment Opportunities

If you are wondering how to invest in AI, here are a few ways you can consider.

AI Stocks

Many companies traded on the stock exchange already use AI technology as part of their business every day. You can invest in these companies. As AI capabilities grow, these companies at the forefront of the technology could stand to profit.

Here are some examples of companies already using AI as part of their core business models.

• Amazon: As AI advances, the e-commerce giant only stands to benefit from improvements. This means better shopping algorithms to drive sales or advances in Amazon Web Services.
• Alphabet Inc.: The parent company of Google has been a leading developer in the field of AI in recent years. Its AI initiatives run the gamut from Gemini, its AI chatbot, to developer tools, business solutions and AlphaFold, a biology research tool from Google DeepMind.
• Nvidia: The company’s AI chips are in high demand, but that’s not where Nvidia’s AI involvement ends. Its technologies have also revolutionized disease prevention, code, dialog and image generation and data analytics.
• Tesla: Virtually every element of Tesla’s business operations relies on AI in some form, from Full Self Driving functionality to energy management. 
• Adobe: This graphic design, video processing and web development powerhouse integrates generative AI into its gold-standard products, including Photoshop.

AI ETFs and Mutual Funds

AI exchange-traded funds and mutual funds pool money from many investors to invest in baskets of securities. They’re a simple way to get exposure to a variety of stocks from companies involved in AI without having to research, buy and then keep up with individual stocks.

Funds to consider, per MarketBeat, include:

• Fidelity Select Technology Portfolio (FSPTX)
• T. Rowe Price Science & Technology Fund (PRSCX)
• VanEck Robotics ETF (IBOT)
• iShares Robotics and Artificial Intelligence Multisector ETF (IRBO)

Venture Capital

Contrary to popular belief, you don’t have to be wealthy to invest in AI startups. In fact, some investment platforms have private market lending opportunities open to all investors.

• Yieldstreet: Offers private market lending opportunities to non-accredited investors. The minimum investment is $10,000.
• StartEngine Private: Provides exposure to AI companies through common stock, convertible notes, debt and revenue shares. You can invest as little as $500, but the platform limits the amount non-accredited investors may invest.
• MicroVentures: This is another private investment platform focusing on AI startups. The minimum investment is just $100.

Key Sectors in AI Investments

AI companies are often categorized as being either hardware companies or software companies. In practice, the two are increasingly intertwined.

AI Hardware

• AI hardware includes the chips and other physical equipment needed to run AI applications.
• Hardware companies have been the fastest-growing, as the venture capital firm TLV Partners, pointed out in a recent blog post.
• As the blog noted, “four of the top ten companies in the world by market cap today — Apple, NVIDIA, Tesla and TSMC — are deeply rooted in hardware.”

AI Software

• AI software consists of programs that tell computers how to perform AI tasks.
• This software can include software-as-service platforms you access from a web browser.
• Top companies in AI software development include some of the world’s largest, including Microsoft, Amazon and Meta, as well as up-and-comers OpenAI and Grammarly.
• Companies like Apple straddle the AI hardware and software worlds.

Risks of Investing in AI

The AI industry is growing rapidly and has profound effects on many other industries. While that growth offers opportunities for investors, it also presents some challenges.

One challenge is the fact that rapid changes in technologies and applications make it difficult to sort fact from hype.

For example, some companies use a tactic called “AI washing,” where they exaggerate how much AI their products actually use, to ride the bandwagon. An example would be presenting a service such as spell check as AI when, in fact, it merely uses AI, according to TechTarget.

Another major risk of investing in AI is volatility. Established companies like Apple and Microsoft have strong financials and proven track records, making them relatively stable investments. However, newer tech companies may be less predictable. Many of these companies have higher valuations based on future growth than actual profits, which makes them vulnerable to marker corrections, according to Simply Ethical, a U.K.-based socially responsible investment firm.

There is also fierce competition in the AI sector. Tech companies are constantly racing to capture market share, which can lead to industry consolidation — when companies merge and fewer big players dominate the space. This makes it harder for smaller companies to survive and compete.

Regulation also has the potential to adversely affect your AI investments.

“AI is a complex and dynamic field that raises various ethical, social and legal issues, such as data protection, privacy, security, bias, accountability, transparency and human rights,” according to PricewaterhouseCoopers. Companies must be able to navigate that changing legal environment.

Long-Term vs. Short-Term AI Investments

Long-term investments make up a “buy-and-hold” strategy where you keep the stock for many years. The intention behind long-term investing is to let the stock appreciate over time. If the stock pays dividends, you earn passive income while the stock appreciates.

Major stocks like Alphabet, Google, Apple and others are good candidates for long-term investing. Their appreciation is often slow — but steady despite temporary setbacks all stocks experience at times.

Short-term investing is for riskier, more volatile stocks. The intent here is to make a quicker profit on rapidly growing shares, and then sell before share prices drop. This is a very risky strategy. The stocks short-term investors select are often speculative, and their values can plummet without warning. In addition, short-term investors try to time the market, which even investment professionals struggle to do successfully.

Conclusion

AI presents opportunities for investors of all experience levels and any budget. Most investors buy stocks or mutual funds, but those who are comfortable taking more risks might consider investing in startups. However you decide to invest, keep an eye on the financial news to stay on top of industry developments, and thoroughly research investments before you buy in.

Dawn Allcot contributed to the reporting for this article.

Information is accurate as of Feb. 13, 2025. 

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