Don’t Get Swept by the AI Hype: Invest Intelligently in the Future
Artificial intelligence (AI) is revolutionizing industries, and it’s no surprise that investors are eager to jump on board. But before you get caught up in the excitement, it’s crucial to understand the different ways to invest in AI and the potential pitfalls to avoid.
AI Companies vs. AI Adopters: Picking Your Path
There are two main ways to invest in the AI boom:
- AI Companies: These companies develop and sell AI technologies like hardware, machine learning algorithms, or robotics. They offer the potential for high returns, but also carry significant risk. Many are young startups with unproven track records.
- Companies Using AI: These companies leverage AI products to improve their existing services. This approach can be less risky as the companies already have established businesses.
Within the category of “AI companies”, it’s important to note a subset: There are companies that develop the hardware capabilities for AI and then there are the companies that develop and build upon the AI software we all hear about (ex. ChatGPT).
Examples:
- AI Company: Nvidia – Nvidia is known for its graphics cards, but the company also produces microchips for autonomous driving cars and AI applications.
- Company Using AI: Warby Parker, uses artificial intelligence and augmented reality technology to provide customers with an extraordinary experience, from trying on lenses to exceptional customer service.
Avoiding the FOMO Trap and Overinflated Stocks
The fear of missing out (FOMO) can cloud your judgment. Don’t chase overvalued stocks simply because they’re labeled “AI.” Remember, even revolutionary technologies can experience bubbles.
Here’s where patience becomes your ally. Consider building your cash reserves while researching companies. This way, you can capitalize on opportunities when stock prices dip.
Finding Your Zone of Expertise: Research is Key
Focus on industries you understand. This gives you a natural advantage when evaluating companies. Here’s the approach:
- Pick an Industry: Are you passionate about technology, healthcare, or retail? Choose an industry where you have some background knowledge.
- Research AI Adoption: Look for companies within that industry that are actively using or developing AI solutions.
- Deep Dive: Research the specific companies. Analyze their financials, track record of innovation, and potential challenges related to AI integration.
Remember, It’s Your Money
Don’t be swayed by media hype or trendy buzzwords. Invest based on your research and understanding, not fleeting excitement. Leave emotions out of it. Here are some cons to consider when evaluating companies:
- AI Integration Challenges: Implementing AI can be complex and lead to unexpected costs or delays.
- Ethical Concerns: AI raises ethical issues around data privacy and bias. Companies with a poor track record in these areas could face regulatory scrutiny.
- Over-reliance on AI: Overdependence on AI can make companies vulnerable if the technology malfunctions or becomes outdated.
Run potential companies through the gamut of why they might fail when banking on implementations of this technology. If you can’t talk yourself out of a good set of reasons they might fail, simply consider another option.
Invest for the Long Term
The AI revolution is still unfolding. By taking a thoughtful, research-driven approach, you can position yourself to benefit from this transformative technology without succumbing to short-term hype. Remember, investing is a marathon, not a sprint. Choose companies you believe in for the long haul, and prioritize your financial well-being over chasing fleeting trends. Find the right fit, a solid company with a good future, that you understand well.