Are you on the hunt for the best stocks to invest in for Artificial Intelligence (AI)? Like NVIDIA Corp (NASDAQ: NVDA)? Or Tesla Inc (NASDAQ: TSLA)? Or looking for some technology ETFs for AI exposure?
NVIDIA Corp (NASDAQ: NVDA) stock price
This article breaks down how I’d invest in AI and why I’m not rushing to do it.
Why I’m NOT ‘all in’ on AI
- Artificial Intelligence (AI)
- ChatGPT
- Machine Learning
- Sophia
- NVIDIA
After years of playing around in the background, AI tools have finally arrived in the palm of the ‘every man’.
And all-of-a-sudden investors are calling it a ‘paradigm shift’.
Microsoft PowerPoint slides that usually take 5 hours could be created in 15 minutes.
Printed circuit boards are designed in minutes with AI.
You can use Canva to create business logos – in seconds!
Free copywriting to proof this email? Done!
While I believe these tools are exceptional, and will change our lives (mostly for the better), I reckon some investors could be at risk of getting ahead of themselves…
If we’re not careful, we could be entering a new era, like the dotcom boom and bust of the 90s/2000s, where stocks like NVIDIA or Tesla keep rising for years.
I’ve been around long enough to have seen this story told before.
Remember pets.com? Yeah, me neither.
But let’s take stock …
Have non-technology companies started inserting “AI” into their financial reports? Check.
An Uber driver is (without asking) telling you to invest in NVIDIA? Check.
AI is among the top 3 questions I’m getting on the Rask Roadshow? Check.
Stock valuations have already skyrocketed? Check!
ETFs: ways to invest in AI (without blowing yourself up)
Alongside ‘couples and money’, the most popular topic at Rask Roadshows is along the lines of ‘what about those AI investments?’
I agree that companies like NVIDIA, the creator of the world’s best Graphics Processing Units (GPUs), are exceptional. But it’s not the only way to play the rise of ‘machine-assisted productivity’ …
You can use a broad market ETF in your Core portfolio — like the iShares S&P 500 ETF (ASX: IVV), which owns 500 US stocks including Apple Inc (NASDAQ: AAPL), Microsoft Corp (NASDAQ: MSFT), NVIDIA, etc.
You could tweak a Core ETF portfolio slightly towards, say, the Betashares Nasdaq 100 ETF (ASX: NDQ), which includes 100 of the top stocks on the NASDAQ.
Betashares Nasdaq 100 ETF
Or you can put a magnifying glass over the top of the technology sector, pushing your Satellite portfolio towards something like the Global X Fang+ ETF (ASX: FANG). This only includes 10 tech stocks, making it a narrow but concentrated bet on big tech.
(Transparency note: Betashares & Global X are long-term advertisers on Rask podcasts. I’m not paid to mention them.)
You could also go stock-by-stock, trying to identify the winner(s). Here’s how I think about these types of things …
If you are bent on ‘picking a winning AI stock’, here’s my advice: Don’t make it ‘all or nothing’.
Cast your mind back to any bubble …
For example, imagine you invested with high conviction and bought a single cryptocurrency a few years back. If you went ‘all in’ on one currency, you might have ended up with nothing.
So if you are here, reading this, thinking that AI is a genuine game-changing theme, try taking a basket approach.
I like to buy 1-2 high-quality ETFs for themes like this. But I’d also consider purchasing very small stakes in a handful of companies.
I’ll wait a few years, assess the industry, then sell the losers and consolidate into the winning companies.
This way I get some exposure (via ETFs) and can scratch the itch of trying to find a winner, learn about who is leading the sector and double down as the industry matures.
Finally, I’d like you to remember this quote from former fund manager and author Peter Lynch:
“During the Gold Rush, most would-be miners lost money, but people who sold them picks, shovels, tents and blue-jeans (Levi Strauss) made a nice profit.”
As I said, I reckon the easiest way to play the AI theme is to hold a (good) ETF. But another way is to simply invest in a company that stands to benefit from the trend.
Levi Strauss & Co (NYSE: LEVI) sold jeans to miners who were hoping to strike it rich.
Google sells ads to people trying to access the internet (the real technology).
Microsoft will allow you to upgrade to an AI version of Microsoft Office (for an additional fee, of course).
Design companies like Altium Limited (ASX: ALU) and Cadence Design Systems Inc (NASDAQ: CDNS) are two examples.
As are social media companies like Meta Platforms Inc (NASDAQ: META), through their better algorithms.
These aren’t exactly ‘AI stocks’, but they’re benefitting nonetheless.
List of popular AI stocks
Here’s a list of popular AI stocks and ETFs:
- NVIDIA Corp (NASDAQ: NVDA) – the world leader in GPUs
- Advanced Micro Devices, Inc. (NASDAQ: AMD) – another world leader in semiconductors
- Microsoft Corp (NASDAQ: MSFT) – through its partnership with OpenAI
- Alphabet Inc Class C (NASDAQ: GOOG) – for its ownership of Google Bard and Search
- Tesla Inc (NASDAQ: TSLA) – self driving technology
- Meta Platforms Inc (NASDAQ: META) – global ad network, social media & metaverse technology
- Altium Limited (ASX: ALU) – multinational software platform used to design Printed Circuit Boards (PCBs), which are used to create ‘smart devices’
- Betashares Global Robotics and Artificial Intelligence ETF (ASX: RBTZ) ~42 companies with global tech & robotics focus
- Global X Fang+ ETF (ASX: FANG) – 10 stocks focused on big tech
- iShares S&P 500 ETF (ASX: IVV) – top 500 US stocks, including big technology and industrials
AI: buy, hold or sell?
Other than through my diversified and low-cost ETFs, plus a couple of technology stocks that stand to benefit (but they are not AI companies), I don’t invest directly into “AI stocks”.
I think there is a real risk many investors are swept up in a bubble for AI, not realising they could be taking big risks with their money.
For sure. Have some exposure via ETFs.
But don’t get drunk on the AI Kool-Aid.
Owen Rask
Founder & Chief Investment Officer
The Rask Group
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