From self-driving cars to surgery-performing robots, artificial intelligence (AI) is helping to transform every part of our lives.And the potential opportunity created by this high-growth, multi-billion pound market has prompted a wave of corporate investment.Microsoft recently announced an extension to its multi-billion partnership with OpenAI to develop its super-computing capabilities in cloud services.ChatGPT, the artificial intelligence chatbot developed by OpenAI, hit 100 million users only two months after its launch, an unprecedented achievement for a consumer app.And it’s not just corporations that are investing heavily in AI.The UK government has committed more than £50 million in funding for AI research by universities, together with an annual £1 million Manchester Prize for the best AI research.As a result, retail investors are looking at AI as the next frontier of investment opportunity, with the potential to make substantial gains from backing the leading companies in this sphere.To help investors navigate through the options, we asked our experts which AI stocks are worthy of consideration and why.
Their choices are set out below (in alphabetical order).Our FAQs section takes a closer look at investing in the AI sector.Investing in the stock market is inherently risky, and doing so puts your capital at risk.You may not get some or even all of your money back.Explore the top AI stocks on eToro Your capital is at risk.Other fees apply.For more information, visit etoro.com/trading/fees.On eToro’s Website $109 $177 billion 348% $109 $177 billion 348% Advanced Micro Devices is a global manufacturer of semiconductors, listed on the Nasdaq and headquartered in the US.
The company manufactures central processing units (CPUs) for personal computers and servers, together with graphics processing units (GPUs) for gaming and data centres.AMD is building AI technology into its future chip designs, with its CEO, Lisa Su, stating in her keynote speech at the Consumer Electronics Show convention in Las Vegas: “AI is truly the most important megatrend for the future of tech.” The company has delivered impressive financial results over the last five years, driving its share price to an all-time high of more than $160 in late 2021.This was some achievement given its share price was trading at $40 only two years prior to that.However, AMD’s share price fell significantly in 2022 as part of the wider tech sell-off, with slowing global demand for computing products weighing on valuations.
But 2023 ushered in a reversal in fortunes.Sam North, market analyst at eToro, comments: “‘With the share price up 66% for the year, it feels like there is still room to go higher.“Ideally, investors would like to see the share price get back above $110, but as long as it holds at $90 a share then I believe investors will be comfortable holding this.If momentum to the upside increases and we break to a new high for the year, its all-time-high trading price of $164 would be the target.” $136 $1.7 trillion 127% $136 $1.7 trillion 127% Alphabet is the holding company for the Google brands, and is listed on the Nasdaq and headquartered in the US.Google continues to dominate the internet search engine market and provides the foundation for the majority of advertising revenue.
However, Alphabet’s cloud services are driving revenue growth, despite competition from Amazon and Apple.Alex Campbell, head of communications at Freetrade, comments: “Alphabet has been at the cutting edge of AI research and development since its acquisition of British start-up DeepMind in 2014.“The company and its so-called “moonshot” unit, X, have transformed areas of AI including computer vision, deep learning, image and speech recognition.” Shareholders have certainly been rewarded with impressive gains, with Alphabet’s share price hitting a record high of $150 in late 2021, a one-year increase of over 70%.
However, its share price fell significantly last year in line with the wider tech sector before recovering strongly in 2023.Dr Campbell adds: “With the recent hype turning to AI developments at competitors, and rumours of Alphabet’s founders getting involved in research and development, it’s likely that we’re going to see more to come from the search behemoth.” $70 $77 billion 40% $70 $77 billion 40% Micron Technology is a provider of computer memory and data storage solutions, and is listed on the Nasdaq and headquartered in the US.The company manufactures memory chips for the personal computers, smartphones, network and data centre markets, in addition to the healthcare and automotive industries.AI technology is likely to be a key growth driver, given the company’s expertise in products capable of storing large quantities of data.eToro’s Sam North comments: “Prices for Micron’s DRAM and NAND chips have increased as a result of a semiconductor shortage and a rebound in the automotive sector.“Profits are increasing rapidly in the current climate.The demand for memory chips will continue to rise in the future, and the AI sector will benefit the most.” Its share price hit $97 in early 2022, its highest level in over 20 years, and an increase of over 75% from its price two years previously.
However, as with many of its peers, it has since suffered a slide in share price in 2022, before recovering some of its losses in 2023.Mr North adds: “With Micron breaking above $65 a share, sentiment is firmly with the bulls.The next target to break would be around the $74 a share mark which is the highest trading price of the year and resistance from April, May, and June last year.A break above that and investors would be looking for a move towards $83.” $329 $2.4 trillion 218% $329 $2.4 trillion 218% Microsoft is another technology behemoth listed on the Nasdaq and headquartered in the US.The company develops software, services and devices for personal computing and commercial markets, with brands including Windows, Skype, Xbox and LinkedIn.
However, its cloud services business is a key driver of revenue, second only to Amazon by market share.As mentioned earlier, Microsoft has demonstrated its commitment to expanding AI capabilities through its recent multi-billion dollar investment in OpenAI.Freetrade’s Dr Campbell comments: “There’s been much talk recently about OpenAI’s ChatGPT as a ‘Google killer’.While rumours of Google’s death might be greatly exaggerated, what’s clear is that Microsoft will no doubt benefit from the AI revolution due to the tools and services offered by its Azure cloud computing platform.” Its share price hit over $340 in 2021, rewarding shareholders with an increase of 130% over the previous two years.
Although its share price fell in 2022 in line with the wider sector, it has subsequently bounced back to set a new record high of almost $360 in July.Dr Campbell adds: “The other potential upside with Microsoft could come from OpenAI itself.It’s probably only a matter of time before we start to see a deeper integration of OpenAI’s tools across Microsoft’s suite of omnipresent software.” $485 $1.2 trillion 618% $485 $1.2 trillion 618% NVIDIA is a leading manufacturer of graphics processing units, and is listed on the Nasdaq and headquartered in the US.The company has been at the forefront of developing high-end GPUs for the gaming, data centre, professional visualisation and automotive sectors.
It’s also expanding its AI capabilities, investing in cloud services and the metaverse.eToro’s Sam North comments: “NVIDIA’s focus in the AI industry is centred on the company’s graphic chips and self-driving cars.Whilst their graphic chips and cards are well-renowned and industry-leading, they are only just starting to make waves in the self-driving car world.” The company’s share price grew exponentially from 2020 to 2021, increasing more than five-fold to hit a high of $320 in late 2021.Having dipped in 2022, it’s delivered a stellar performance this year and is currently trading at an all-time high.
Mr North adds: “’After two blockbuster earnings reports, NVIDIA is up nearly 250% for the year.It makes sense for investors to take some profit.
“However, it would also be wise to still have some of the position left in case of a further move up.As long as the price remains above its October 2022 high of around $345 then sentiment favours the bulls.” Artificial intelligence is a catch-all term to describe the simulation of human intelligence by computers.
Although it may conjure up images of robots gliding around, in fact most people are already using AI, from filtering spam emails to planning journeys to avoid congestion.AI has already been widely adopted in the development of self-driving cars, digital healthcare solutions and algorithm-based trading.While AI is capable of analysing vast quantities of data, more advanced systems are able to learn from past mistakes and adapt future behaviour.Artificial intelligence is set to revolutionise our everyday lives, with an annual growth rate of 40% in the global market forecast over the next few years, according to market research firm Grand View Research.Freetrade’s Dr Campbell comments: “We’ve seen a frenzy in AI interest almost singlehandedly drive US markets higher so far in 2023.Looking towards the latter half of 2023, investors should consider whether some of the loftier valuations we’ve seen emerge have got too far ahead of fundamentals.“Another quarter or two of continued improvement in fundamentals ahead of expectations could indicate that we’ve got a lot more runway left.
But if the market reaction to NVIDIA’s last set of results is anything to go by, we might be seeing the AI craze level off before it continues to climb.” Investors have a wide choice if they’re looking to add AI-related shares to their portfolio, from semiconductor chip producers to car manufacturers pioneering self-driving vehicles.eToro ’s Sam North adds: “Early tech investors in companies like Apple, Amazon and Google have been rewarded when many were cautious and wanted to wait for more clarification on whether tech was here to stay.
“Investors will of course have to weigh up whether the reward outweighs the risk but history shows that investing early in the right companies can be very beneficial.” However, investors should also weigh up the risks of investing in AI shares.Some of the technology remains in its infancy, with little visibility as to the ultimate ‘winners and losers’ in the race to capitalise on the potential opportunity.Mr North comments: “Some of the negatives of AI are the high initial set-up costs, risks to human employment, complex algorithms, lack of regulatory scrutiny and risk of overtaking humanity.“From an investing standpoint, as this is still a relatively new area, volatility will be expected.Just like we have seen with tech stocks in the dot com bubble and crypto currencies over the last few years, prices of investments can vary wildly.” As a result of these risks, investing in AI companies should only form a small part of a diversified investment portfolio.Investors may also want to consider other options such as investing in an AI-related fund (which we cover in more detail in our FAQs below).One of the most popular ways to buy shares is via an online trading platform.
Shares can be bought using a general trading account, or a tax-efficient wrapper such as an individual savings account (ISA).It’s worth comparing the fees charged by the platform, as these can vary significantly.We’ve compared the fees, along with other information, in our pick of the best trading platforms and best stocks and shares ISA providers .Most trading platforms offer the option to buy US shares, such as those featured in this article.However, investors will generally be charged a foreign exchange fee of around 0.5% to 1.0% of the value of the purchase, along with a higher trading fee on non-UK shares.Investors buying US shares will be asked to fill in a W-8BEN form (valid for three years) which allows them to benefit from a reduction in withholding tax for qualifying US dividends and interest from 30% to 15%.
Holding non-UK shares also carries foreign exchange risk.For example, if the pound strengthens against the dollar, US shares will be worth less in their sterling equivalent.Funds are a low-cost way of investing in a ready-made portfolio of assets including equities, bonds and commodities.Funds pool money from investors to be invested by a fund manager, and are split into with two main types: There are a growing number of options for investing in AI funds.Some funds focus on companies engaged in AI services, while others invest across the technology sector as a whole.To help with this, we’ve produced a guide to our pick of the best AI funds ..
