How AI Transforms The Investment And Brokerage Business
The past two years have significantly advanced the expansion and growth of many digital products, services, and investment strategies. The same is true for blockchain and artificial intelligence.
A wide range of apps is already being used in day-to-day life. Institutional trading platforms, direct access brokers, and HFT-investment tools expand their capabilities via API connections from AI backend systems. Companies with a significant footprint in the artificial intelligence sector have shown remarkable evolution and strength in the financial markets. Investors who have chosen the right stocks in the early stages of AI made meaningful profits partaking in their growth.
AI Revolutionises The Economy
Whether in the investment or energy sector, legal advice, retail or elder care, the areas in which artificial intelligence systems can be used are numerous and broad. Consequently, companies and analysts assume that artificial intelligence will revolutionise the economy of the 21st century.
AI has become a fundamental everyday companion for many people. For example, many use it to access buildings and data centres or digital facial recognition on their newest smartphones. Internet search results are getting better and better by picking the best results for a relevant query out of multi-millions of potential websites. In addition, voice assistance and translators become faster, and spell checkers in e-mails are more accurate than ever before.
The chances are that millions of people will be transported by autonomous driving cars soon. For their use, test automobiles are in operation worldwide. They collect “driving experience” over millions of miles and collect the essential data for self-learning algorithms.
Investors In AI-Focused Companies
Companies with a substantial focus on artificial intelligence see rapid gains on stock markets like the New York Stock Exchange or Nasdaq. Tech giants such as Microsoft Corporation, Nvidia Corporation, Alphabet Inc., and Apple Inc. have seen significant gains between March 2020 and December 2021. They all have in common that their services are used with existing products without selling something new to a customer.
Microsoft Windows is still by far the leading operating system on P.C. Alphabet’s Google search is implemented on billions of devices and used by billions of users around the world every day. Nvidia’s graphic cards are part of most gaming computers, and Google’s Android-based devices dominate the smartphone market along with Apple’s iOS systems. Those technologies play a crucial role in advancing artificial intelligence, whether Alexa, Cortana or Siri.
Nevertheless, caution is required, like with any investment. Being an industry leader in a growing market does not automatically ensure unlimited success without risk.
Companies can fail despite good ideas. Facebook, for example, changed its company philosophy in late 2021 by re-branding the company name from Facebook to Meta Platforms. with the focus on the growing Metaverse. This new company strategy is not a guarantee of success, and first growth projections confirm that the future growth is expensive while the user base is shrinking for the first time. Facebook goes with the Metaverse trend, and people tend to confirm that this is a real trend, but it might take decades before actual results become visible in balance sheets.
Therefore, buying individual shares of companies focusing on AI can lead to meaningful profits and extensive losses. Regardless of the prevalent company strategy, current market stake and future expansion of the digital transformation.
In general, investments need explicit expertise to determine the best possible companies worth an investment. The risk of investing in specific assets is significantly higher than for mutual funds that invest broadly and are actively managed by investment professionals.
AI Company Investments
Investing in specific shares of a company requires insights into the most key company fundamentals and ample knowledge about the stock market in general. Many free stock trading platforms provide free information about company metrics like:
- Market Cap
- Profit Earnings Ratio
- PEG Ratio
- Earnings Per Share
In addition, numerous websites also supply users with stock charts, technical analysis features and portfolio tracking functionalities. But, in the beginning, investors have to learn how to interpret those company fundamentals correctly. Comparisons relative to other companies in peer groups and other sectors are also meaningful.
A small fraction of investors prefer day trading volatile growth stock with big stakes in AI technologies. They utilise tools to profit from minimal stock market movements. Such tools often focus on high-speed trade execution, extensive charting capacities and excellent customer support. Some of those platforms also use AI to find the best tradable stocks.
Day traders often trade 1,000 shares or more at once to achieve a high cumulative profit. Interestingly, a day trader holds 100% cash overnight without investment exposure. Therefore day trading is entirely independent of the company’s future potential and business success.
Day trading is one of the most speculative investment strategies and demands a massive time responsibility. That’s why most investors choose long-term investments by using instruments like ETFs.
Investing in artificial intelligence-focused mutual funds or exchange-traded funds is often considered a much safer alternative to day trading. With an accelerating digitisation trend, some investment funds focus entirely on artificial intelligence to benefit from the value driven by this technology. Their broadly diversified portfolios help investors partake in the evolution of AI companies worldwide.
Diversification of investments by investing in ETFs is a great alternative to day trading AI stocks. The key benefits are:
- Investing in ETFs requires a small time commitment
- Most stock brokerages in the US allow clients to buy and sell exchange-traded funds without the need to pay commissions
- The issuer of the ETF manages it and takes care of rebalancing activities.
The artificial intelligence business has immense potential, and it will be one of the pivotal disrupting industries in the 21st century. As a result, investors can now participate in the future growth of AI in numerous ways. Retail brokers and more specialised HFT brokers continuously expand their capabilities and enable investors to connect AI systems to their order routing systems. Algorithms take care of the order routing and trade execution process.
Long-term investing via AI-focused exchange-traded funds has some limitations in controlling the company diversification within the ETF but requires only a little time commitment from the investor. In contrast, investing in stocks is an excellent way to diversify a portfolio directly. Still, it requires comprehensive knowledge of financial market behaviour and insights into key company financials. Yet, day trading volatile stocks allows to stay on cash overnight, but it is only an option for professionals and demands the highest time commitment.