How to Invest in Artificial Intelligence Companies

Artificial intelligence (AI) is transforming various industries, ranging from healthcare to finance, by enabling systems to perform tasks that typically require human intelligence. This widespread application and rapid advancement have captured the attention of many individuals seeking to participate in its growth. Navigating the AI investment landscape is a key step for those interested in adding this technology to their financial portfolios. This article guides you on identifying AI-focused companies, exploring investment avenues, and executing investment decisions.

Recognizing Companies Driving AI Innovation

Identifying companies genuinely involved in artificial intelligence requires looking beyond surface-level claims. Companies developing core AI technology often create underlying infrastructure, platforms, or fundamental algorithms that power AI applications. These include firms specializing in machine learning, natural language processing, or computer vision, which serve as foundational elements for broader AI solutions. Some companies also develop AI platforms, offering tools that allow other businesses to import data, train models, and validate their AI systems.

Another category includes companies that apply AI within specific industries to solve particular problems. For instance, AI is used in healthcare for diagnostics, in finance for fraud detection, and in manufacturing for automation. These “vertical AI companies” integrate AI into their products or services to enhance efficiency, deliver new capabilities, or improve decision-making. Other businesses benefit from AI adoption, even if not primarily AI developers. This includes manufacturers of advanced computing hardware, such as graphics processing units (GPUs) essential for AI computation, or cloud computing providers offering necessary infrastructure for AI development and deployment.

When evaluating potential AI investment targets, assess their primary business activities and commitment to research and development (R&D) in AI. A company’s market position within the AI ecosystem, including its competitive advantages and technological innovation, also provides insight into its potential for sustained growth. Examining financial health, revenue streams, growth prospects, and leadership team experience offers a comprehensive view of a company’s investment potential. Understanding market demand for a company’s AI-driven products or services and its ability to attract and retain customers can indicate long-term viability.

Pathways to Invest in AI

Several investment vehicles are available, offering exposure to artificial intelligence. One common option is purchasing individual stocks of publicly traded companies engaged in AI development or application. These can be “pure-play” AI companies, whose business centers on AI technology, or larger technology companies with significant AI interests integrated across their product offerings. Investing directly in individual stocks allows targeted exposure to specific companies with strong growth potential in the AI sector.

Another pathway is through exchange-traded funds (ETFs) focusing on artificial intelligence or related technological themes. AI-focused ETFs typically hold a diversified basket of stocks from companies involved in AI research, machine learning, automation, and robotics. These funds allow investment in a collection of AI-related businesses without needing to research and select individual stocks. Many AI ETFs track specific market indexes, offering broad exposure to the AI sector.

Mutual funds also offer exposure to AI, though dedicated AI-exclusive mutual funds may be less common than ETFs. Similar to ETFs, mutual funds focusing on technology or innovation can include companies with significant AI involvement. Both ETFs and mutual funds provide a diversified approach to AI investing, spreading risk across multiple companies rather than concentrating it in a single stock. This allows investors to participate in the broader AI industry growth while managing potential volatility from individual company performance.

Making Your AI Investment

After identifying potential AI companies and selecting an investment vehicle, the next step is making your investment. This begins with opening a brokerage account online through various financial institutions. The application process generally requires providing personal information, such as your legal name, current address, Social Security number, and employment details. Most online brokerage accounts open quickly, often within minutes, though verification steps might extend initial setup time.

Once the brokerage account is established, it needs funding before investments can be made. Common methods for depositing money into a brokerage account include electronic funds transfers (ACH transfers) from a linked bank account, usually free but taking one to three business days to settle. Other options include wire transfers, generally faster, often completing within one business day, but may incur bank fees. Direct deposits or mailing a check are also available, with varying processing times.

With funds in the account, you can place orders to purchase stocks, ETFs, or mutual funds. For stocks and ETFs, you can typically choose between a market order or a limit order. A market order instructs the broker to buy or sell the security at the best available price when the order is received, prioritizing immediate execution. A limit order allows you to specify the maximum price you are willing to pay for a purchase or the minimum price you will accept for a sale, ensuring greater price control, though it may not execute if the market price does not reach your limit. Mutual fund trades execute once per day after market close, at the net asset value (NAV) calculated at that time.

It is important to understand the tax implications of investment gains. Profits from selling investments are subject to capital gains tax. Short-term capital gains, from assets held for one year or less, are taxed at ordinary income tax rates (10% to 37% depending on income). Long-term capital gains, from assets held for more than one year, are taxed at lower, preferential rates (0% to 20%). Higher-income earners may owe a 3.8% net investment income tax (NIIT) on certain investment income, including capital gains, if their modified adjusted gross income exceeds specific thresholds.