One fundamental rule of investing is to focus on investing in areas where you have a strong understanding. It is essential to avoid investing in businesses that you do not comprehend fully. Renowned investor Warren Buffett, for example, refrained from investing in technology for an extended period because he did not feel he understood it well. Nonetheless, he still managed to achieve success through the power of compounding. For individuals who are new to the technology sector but are interested in investing in artificial intelligence (AI) stocks, it is important to know where to start.
AI is a highly complex technological advancement. However, being able to grasp the algorithms is not a necessity for investing in technology. Instead, it is crucial to assess how AI can contribute to a company’s profitability. If one cannot identify the opportunities, it is advisable not to proceed with the investment. This is because only by understanding the business and its potential can an investor weather challenging market conditions.
As a new investor in the tech industry, a good starting point for investing in AI stocks is to focus on companies where the impact of AI is visibly evident. Additionally, gaining exposure to the broader trend can be achieved through investing in an AI-themed exchange-traded fund (ETF). Furthermore, educating yourself about AI and its investing opportunities is essential for building a solid foundation in the tech sector.
AI operates on various levels, encompassing hardware, software, infrastructure, and end applications. Several companies are developing AI capabilities, leading to increased revenues for hardware suppliers like Nvidia and Broadcom. These companies have demonstrated robust growth in AI-chips revenue, positioning themselves as leaders in the field. Investing in such companies can provide short-term growth opportunities, given the increasing capital expenditure by businesses in AI capabilities.
Investing in individual tech stocks carries inherent risks, as the sector is known for its volatility and disruptive nature. To mitigate the risk posed by rapid technological advancements, diversifying your AI investments into ETFs can be a prudent strategy.
One such option is the Global X Artificial Intelligence & Technology ETF, which invests in companies involved in hardware production or using AI to enhance their products and services. This ETF offers exposure to a portfolio of 84 AI stocks selected by fund managers. By investing in this ETF, investors can benefit from the overall performance of the underlying stocks while diversifying their risk exposure.
In conclusion, investing in AI stocks involves navigating through uncertainties and volatility. Despite the risks, new technologies have the potential to drive down costs and lead to significant advancements. By being prepared for the inherent risks and uncertainties associated with investing in new technology, investors can position themselves to potentially benefit from the next breakthrough in the industry.
