Investing in Artificial Intelligence

Artificial Intelligence (AI) enables systems to perform tasks requiring human-like intelligence, such as learning, reasoning, and perception. Key areas include Machine Learning, where algorithms learn from data; Natural Language Processing, which allows understanding and generating human language; Computer Vision, for interpreting visual information; and Robotics, for autonomous machines.

AI is categorized into Narrow AI (specialized tasks), General AI (theoretical human-like intelligence), and Superintelligent AI (hypothetical superior intelligence). AI’s applications span healthcare, finance, and many other sectors, delivering signficantly increased efficiency for service providers and manufacturers.

In this guide to investing in Artificial Intelligence, you’ll learn about the following:

AI is already developing in new and exciting directions for investors. Companies that provide infrastructure as a service – the hardware for foundational development – are the most high profile. This list of companies includes Nvidia, AWS, Azure and the Google Cloud. Other companies like PagerDuty and Datadog are developing the essential platform infrastructure and software. It’s the fastest growing part of the sector, but one where investors get the least exposure. Beyond this, companies like Salesforce are also benefiting from AI development, as they deliver Software as a Service (Saas) applications.

Outside pure play artificial intelligence, many adjacent sectors, like robotics, stand to benefit from this technological revolution in the very near future. As an example, iRobot, the makers of Roomba robot vacuum cleaners are looking at ways to integrate AI into their next generation of machines with the aim of helping them to distinguish between different types of rubbish in your home. For manufacturing, Industry 4.0 as it is called, holds out the potential for companies to move beyond the limits of automated manufacturing. This may be through the development of robots capable of much more sensitive processes like fruit picking or drugs manufacturing.

For investors who are already fans of the AI revolution, it can pay to investigate those companies and sectors with scope to truly benefit and profit from practical applications of the technology.

Investors planning to invest in artificial intelligence have a range of options available to them. Exchange Traded Funds that focus specifically on the AI sector are a great place to start. For those who are more risk tolerant, the appeal of identifying a unicorn or ten-bagger will throw up any number of young tech stocks that could be the next big thing, or for those who prefer to follow the crowd, the Magnificent 7 could be the place to start. But beyond this there are a broad range of other companies within the sector and adjacent sectors which have the potential to be highly profitable in the years to come. We take a look at your options below.

Diversifying outside the Mag 7 stocks

Investors can diversify their AI exposure to include companies at the very forefront of innovation which are less well known but positioned for significant growth. Examples include the likes of Palantir, CrowdStrike and Datadog, which all build customised AI applications in the fastest growth segment of the AI software market.

Furthermore, investors looking to gain a more complete exposure to the AI growth story can venture beyond solely focusing on AI software to include Robotics. The convergence of AI and robotics is driving significant productivity gains in the physical world particularly through the development of adaptive robotics and autonomous mobility. Disruptive companies such as Teradyne, Tesla and Rocket Lab are leading the charge here, among many others.

By broadening your exposure outside the Mag 7 stocks, you also avoid some of the concentrating risk which is inherent