In recent years, the proliferation of artificial intelligence (AI) across various sectors has spurred immense interest from both individuals and corporations worldwide. With substantial investments from industry giants and startups alike, the potential applications of AI in finance, healthcare, transportation, and beyond seem limitless. Naturally, this has led many to consider AI as a viable avenue for investment. However, the landscape of AI investment is complex and nuanced, requiring careful consideration of various factors.
While the question of whether to invest in AI stocks is frequently asked by our clients, a more pertinent inquiry might be when to do so. Despite the hype surrounding AI technologies, regulatory uncertainties, ethical considerations, and technological limitations represent significant risk factors.
Prominent players in the AI arena, such as OpenAI, Google, and Facebook, Microsoft, Nvidia, Apple and Amazon are driving innovation and shaping the future of AI. However, the dynamics of the AI market are fluid, and identifying the eventual winners and losers remains challenging. Concerns about capital expenditure requirements, sustained profitability, and competitive dynamics underscore the need for a balanced investment approach with respect to AI.
For example, Apple had long been working on a self-driving car, dumping billions of dollars into the project before nixing it. Amazon just recently decided to abandon their “Just Walk Out” shopping technology in its’ brick and mortar stores due to too much human interaction needed for risk management and compliance of the technology, among other reasons. Today, AI is the flavor of the day for big tech companies, but who will succeed and how profitable the business will be is an open question.
In light of these considerations, we would advise investors to adopt a multi-faceted approach:
- Thorough Research and Due Diligence
Understanding the intricacies of AI technology, its applications, and its implications for various industries is paramount. Investors should conduct comprehensive research and due diligence to assess the long-term viability of AI investments. - Long-Term Vision and Emphasizing Return on Investment
Investing in AI requires a long-term perspective, as the full potential of AI technologies may take years or even decades to materialize fully. Investors should focus on companies with strong technology, the potential for gaining a sustainable competitive advantage, and a clear strategic vision for leveraging AI. Assessing AI companies based on these, as well as long-term growth potential, is crucial, particularly in the dynamic landscape of AI investment. While short-term trends may tempt investors, prioritizing sound fundamentals can lead to more sustainable and lucrative outcomes. Given the swift pace of advancements in AI technology, investing with a long-term perspective can unlock significant potential returns. - Active Monitoring and Adaptation
The landscape of AI is dynamic and evolving rapidly, to say the least. Investors must stay informed about the latest technology developments, market trends, and regulatory changes to make informed investment decisions. Regular portfolio reviews and adjustments will be necessary to make adjustments to capitalize on winners in the space, emerging opportunities and mitigate risks. In addition, valuation should always be an important consideration; today most AI related companies are trading at prices that make it very difficult to justify investment. - Ethical Considerations
As AI technologies become increasingly integrated into various aspects of society, investors should consider the ethical implications of their investments. Supporting companies that prioritize ethical AI development, data privacy, and social responsibility can align investment objectives with broader societal goals.
While the allure of AI investment is undeniable, navigating the complexities of AI requires a thoughtful and informed approach. By conducting thorough research, managing risks effectively, maintaining a long-term perspective, and considering ethical considerations, investors can position themselves to capitalize on the transformative potential of AI investment while mitigating associated risks. However, the most effective strategy is to consult an investment firm like Pekin Hardy Strauss to help you determine which approach is right for you. Schedule a free financial assessment today.
This article is prepared by Pekin Hardy Strauss, Inc. (“Pekin Hardy,” dba Pekin Hardy Strauss Wealth Management) for informational purposes only and is not intended as an offer or solicitation for business. The information and data in this article does not constitute legal, tax, accounting, investment, or other professional advice. The views expressed are those of the author(s) as of the date of publication of this article and are subject to change at any time due to changes in market or economic conditions. Pekin Hardy cannot assure that the strategies discussed herein will outperform any other investment strategy in the future. Pekin Hardy holds Google (GOOG, GOOGL), Facebook (META) and other companies mentioned in this edition in some of its client accounts. Investors should carefully consider their financial goals, risk tolerance, and investment experience before committing funds to alternative assets.
