How is AI Affecting the Stock Market?

Artificial intelligence (or AI) has been lurking in the shadows of research for the last 30 years.

Its upcoming presence, while disputed, will have drastic effects on the market and overall economy. The relatively new industry is predicted to grow from $59.1 billion to more than $430 billion in the next six years.

What companies are thriving in the industry, and is this a safe investment? AI is a daunting idea for most people, not because of how valuable the technology is for the future of almost every commercial industry, but because of how much better AI is than humans. AI has seen almost exponential increases in computational, technological and empathetic improvements.

Soon enough, AI will perform tasks that required teams of workers 20 years ago. Elon Musk, the founder and chief executive officer of Tesla (NASDAQ: TSLA), of Austin, Texas, and SpaceX of Hawthrone, California, said, “Dealing with artificial intelligence is like summoning the devil.” But AI is coming no matter, like it or not.

How is AI Affecting the Stock Market? Adapting to the New Wave

AI has been known to be a swim-or-sink industry due to the massive amount of research and development (R&D) that goes into processing and innovating technology that can create adaptable industry standards. Out of all companies that invested in AI projects, 92% have seen positive returns, according to a 2022 full-industry survey from the Sloan Business School at the Massachusetts Institute of Technology (MIT).  That is up 47% from only five years ago. To hear more about the supplier aspect of AI, Sloan has done a comprehensive review of how AI has created revenue for companies.

But how is this affecting investors? Companies that have recently been integrating AI in their business models have been standing out. One of the most prominent is Microsoft (NASDAQ: MSFT), of Redmond, Washington. Microsoft in recent years has poured a large sum of R&D into using supercomputers and AI to efficiently serve their customers. AI helps to operate computer applications, expand cloud space and cut the production costs of their virtual machines.

Chart courtesy of Yahoo Finance

In the last five years, even amidst the pandemic, Microsoft has achieved a 183% increase in its stock price.  Another company integrating AI into its core business model is IBM – International Business Machines (NYSE: IBM), or Armonk, New York. The familiar name in hardware and software products has been consistently adding AI to its supply chain and technology production. IBM has successfully bounced back from the pandemic, with an 8% increase in its stock price, compared to a 19% drop in the S&P 500 through Dec. 22, 2022.

Another company that has caught onto the AI trend is Seattle-based Amazon (NASDAQ: AMZN). Amazon diversified through technology time after time, and the addition of AI is no exception. Artificial intelligence has been implemented into many of Amazon’s most prominent money-making fields.

In delivery, Amazon is in the process of creating more efficient routing and delivery of goods with artificial intelligence. Alexa, Amazon’s virtual home assistant, is seeking to enhance its integration of AI Those two examples are only the tip of the Iceberg when it comes to fast-paced technological upgrades seen at Amazon. The graph above shows the stock price for the last five years of prominent companies in the AI space.

How is AI affecting the stock market? – Is AI a Safe Investment?

Companies that have good strategies for the future will lead the tech industry. But are they safe? Tech companies are not immune from risk, especially during the 2020-2022 pandemic, when the stock market became volatile and hard to predict. While many investments have been negatively impacted at one point or another, companies engaged in artificial intelligence activities have shown resilience.

Artificial intelligence surrounds our everyday lives in almost all aspects. From customer shopping and ride-sharing to the applications that workers use during the business week, AI seems omnipresent. Risk can never be taken out of the equation, but AI offers a stable investment for long-term technological improvement. While investing in one company might be risky, AI ETFs offer multi-industry investments that have high upside with reduced risk.

The Global X Robotics & AI ETF (BOTZ) offers holdings in various companies that prioritize this new AI technology. Another strong option is the ROBO Global Robotics and Automation Index ETF (ROBO), which offers investments in companies like vehicle manufacturer Ford (NYSE: F), of Dearborn, Michigan, and technology companies like ServiceNow (NYSE: NOW), a cloud computing company in Santa Clara, California. AI-focused ETFs can help mitigate the risk of investing in individual companies, but still offer exposure to the technology’s growth potential.

Adoption of artificial intelligence is inevitable with the promising technological growth that society has reached in the last two decades. Though it is a daunting idea that technology could surpass our human minds, the risk with AI is real. AI companies have already started the process of integrating this new technology into core business models. AI is the next step in innovative technology, so investors will not want to miss out on its multitude of benefits.

Jordan Ellis writes for www.stockinvestor.com.