Microsoft co-founder Bill Gates considers the development of artificial intelligence (AI) to be as fundamental as the microprocessor, personal computer, Internet, or mobile phone. And he believes it will change how people work, learn, travel, get healthcare, and communicate with each other, and entire industries will reorient around it.
In this article, we’ll look at how to invest in the AI boom and where the opportunities may lie.
No Golden Ticket
It’s natural to think tech companies developing AI will be the biggest beneficiaries. However, a leaked internal memo from Google suggests AI models are quickly becoming commoditized and widely available in open-source software – that is, software freely available to anyone.
If AI models are freely available, investors may assume that hardware is the best investment. Training AI models requires specialized hardware known as graphical processing units (GPUs), like those produced by NVIDIA Corp., or specialized chips being churned out by Apple Inc. (AAPL), AMD Corp. (AMD), or Intel Corp. (INTC).
The problem is open-source training data has already done the hard work. After training a model, you can run many open-source options on a Pixel 6 or standard laptop without powerful GPUs. Moreover, Apple’s M2, AMD’s Ryzen, and other chips incorporate AI processors, making them default in next-generation notebooks and PCs.
Investing in Technology Infrastructure
Tech firms will still benefit from these trends – just not as much as their customers. For example, OpenAI’s APIs could power tools businesses use, but they may have limited pricing power in a market where open-source tools are widely available. And hardware may help train new models, but only for sizeable specialized use cases.
As a result, investors may consider investing in AI-focused ETFs offering exposure to companies like Microsoft (MSFT) and NVIDIA. Some of these ETFs also invest in tech companies leveraging AI to improve their operations, such as HubSpot Inc. (HUBS) with marketing automation or Palantir Technologies Inc. (PLTR) with its big data analytics.
Active ETFs with Exposure to AI
| Name | Ticker | Type | Actively Managed? | AUM | YTD Ret (%) | Expense |
| ARK Innovation ETF | ARKK | ETF | Yes | $8.85B | 25.2% | 0.75% |
| Global X Robotics and Artificial Intelligence ETF | BOTZ | ETF | Yes | $1.58B | 28.6% | 0.68% |
| First Trust Artificial Intelligence & Robotics ETF | ROBT | ETF | Yes | $214M | 18.9% | 0.65% |
| iShares Robotics & Artificial Intelligence ETF | IRBO | ETF | Yes | $269M | 18.1% | 0.47% |
Leverage Is Key
The best opportunities will likely be companies employing AI to increase leverage across their business. For example, drug companies that use AI to analyze scientific journals and spot drug development opportunities could increase the chances of finding the next blockbuster. Or, banks may use AI to streamline customer service and improve fraud detection.
Unfortunately, many of these opportunities are not easily found in ETFs because there’s no easy way to index them. Instead, investors may need to dig into conference call transcripts and SEC filings to identify companies investing in and leveraging AI within their organizations while looking at profitability or other metrics to assess their success.
AI could also open the door for disruption from smaller startups. For example, small companies may quickly scale into large markets by using AI to enhance their operational leverage or develop a durable competitive advantage. As a result, investors may also want to keep an eye out for these companies in the private and public markets.
Don’t forget to explore all mutual funds, indexed ETFs, and active ETFs that can provide you exposure to the broader technology sector here.
The Bottom Line
Artificial intelligence could have a significant impact on many industries. But unlike smartphones or microprocessors, AI models are becoming much more democratized and widely available in open-source formats. As a result, the biggest beneficiaries may be companies quick to adopt the technology rather than the technology’s initial developers.
