Artificial intelligence has had a significant impact on the investing landscape since the launch of ChatGPT in November 2022. In the following years, investors have shown great interest in AI-related investments, with major technology players such as Tesla, Amazon, Meta Platforms, Apple, Microsoft, Alphabet, and Nvidia contributing to market rallies in 2023 and 2024. However, even the strongest performers faced a setback in 2024, with Big Tech names dragging down the Nasdaq Composite. In the world of AI investing, there are many unknowns, and investors need to conduct thorough research and due diligence.
As AI technology transitions from early-stage winners to second-stage adopters, investors may need to consider specific strategies for long-term plays in the space. When looking for potential investments in AI stocks, it is important to pay attention to companies’ cash burn, spending patterns, and government grants. Companies engaged in semiconductor production, for example, may benefit from government funding like the CHIPS Act, which aims to bolster semiconductor manufacturing in the U.S. It is also crucial to focus on underlying fundamentals rather than short-term earnings when evaluating AI stocks.
One way to diversify AI investments is through exchange-traded funds (ETFs) that offer exposure to a basket of AI-related stocks. This approach can help reduce risk and provide broader exposure to the AI theme, rather than relying on individual stocks. ETFs like Global X Robotics and Artificial Intelligence ETF (BOTZ), First Trust Nasdaq AI and Robotics ETF (ROBT), and Global X Artificial Intelligence & Technology ETF (AIQ) can offer diversified exposure to AI-related companies. Diversification through ETFs can help investors withstand market volatility and reduce risk.
Volatility is a common challenge in investing in new trends like AI, as stocks can initially rise but may experience pullbacks and corrections over time. ETFs can help mitigate this volatility by offering exposure to a range of AI-related companies, rather than concentrating investments in a few individual stocks. While popular AI winners like Nvidia and Meta have seen significant gains, ETFs may offer a more stable and lower-risk option for investors. Additionally, ETFs with high trading volume and low fees are recommended for investors looking to gain exposure to the AI sector.
Investors should be cautious when considering individual AI stocks, as their performance can be highly volatile. ETFs provide a way to participate in the AI sector while minimizing risk and spreading investments across multiple companies. By selecting ETFs with reputable backing and diverse holdings, investors can benefit from the growth potential of AI technology without relying solely on individual stock picks. Overall, diversification through ETFs can help investors navigate the unpredictability of the AI market and capture long-term growth opportunities.
