Artificial Intelligence (AI) is one of the fastest-growing technologies internationally. Experts believe that its evolution will be an important part of how people operate.
Some of them expect that AI will be akin to other large technologies that changed the world like cloud computing, electric vehicles, and the iPhone.
In this article, we will look at how to analyze and day trade AI stocks, with a small list of the best companies to watch out for.
What is AI and how does it work?
Artificial Intelligence is a broad technology that simplifies how people work and interact with technology. It refers to technology that handles things that humans do in a simple way.
IBM defines AI as a field that combines computer science and robust datasets to enable problem-solving. AI is all around us. A good example of common AI activities are Google Maps, facial detectors, and social media among others.
How AI works is a relatively complicated since most AI models are different. In most cases, AI works by feeding large data sets in a model and then using complicated mathematical calculations to process them.
For example, well-known AI services like ChatGPT and IBM Watson are fed with large volumes of data, which they can process.
Why traders and investors should be interested in AI companies
There are several reasons why investors and traders should be interested in artificial intelligence companies. First, these companies are expected to have a lot of growth in the coming years. In most cases, emerging technology firms tend to have faster growth than traditional companies. We saw that with other key industries like cloud computing and streaming.
Second, for traders, artificial intelligence companies tend to be more volatile than other firms. This volatility is usually a good thing for traders since it creates more opportunities.
Further, AI companies are set to dominate key markets and industries in the future. For example, car companies like Tesla and Lucid have a lot of AI features in key stuff like cruise control. Similarly, firms like TikTok, Instagram, and Google use AI in so many ways.
How to trade AI stocks
There are two main ways in which you can trade AI stocks. First, you can focus on AI stocks directly. As you will see below, there are several types of AI companies in the industry today. As such, you can invest or trade in these firms.
Second, you can day trade AI ETFs. In the past few months, several financial services companies have created ETFs that track some of the leading AI companies.
The biggest of these funds is the Global X Robotics & AI ETF, which has over $1.35 billion in assets. Other AI ETFs are the ROBO Global Robotics and Automation ETF, iShares Robotics and AI ETF, and First Trust Nasdaq AI ETF.
Related » What are ETFs?
Types of AI stocks
There are several types of AI stocks that you can day trade or invest in. First, there are companies that create AI software. A good example of this is C3.ai, which provides companies with software that they can use to develop their own tool.
Second, there are companies that use AI to complement their services and products. For example, Google and Microsoft Bing use AI to improve their search offerings.
Similarly, social media companies like Meta Platforms and TikTok use AI to improve how people interact with their platforms. For example, they use AI to recommend videos and photos.
Third, there are firms that provide the infrastructure that is needed for AI to work properly. A good example of this is Nvidia, which provides the chips that are needed to process AI models.
There are also cloud computing companies like Microsoft and Google Cloud that offer backend storage solutions.
Further, there are industry-specific AI companies. For example, there are companies that exist in industries like cybersecurity, customer support, and automobile.
Best AI stocks to trade
As mentioned, there are many AI stocks to day trade today. And most of these companies are in the United States. Here are some of the top AI stocks that you can consider today:
C3.ai is an artificial intelligence company that provides tools to companies that want to build AI products. It is used by companies in all industries like Baker Hughes, Shell, Engie, and Koch Industries among others.
The firm has a market cap of more than $2.3 billion. It generates more than $266 million annually. But it also makes large losses. In 2022, the company had a net loss of over $262 million.
Nvidia is one of the biggest semiconductor companies in the world. It designs some of the most powerful graphics chips in the world. They are used across all industries, including automobile, healthcare, gaming, and Bitcoin mining.
Nvidia, therefore, is an indirect AI company in that it provides solutions that are needed in the industry.
Microsoft is a good AI stock to trade or invest in because it provides both AI solutions and infrastructure.
Its Bing search engine is gaining market share against Google. At the same time, its Azure product is the second-biggest cloud computing platform in the world after AWS.
Therefore, it will benefit as the industry sees strong growth in the future.
This is a company that provides cybersecurity solutions. Unlike other firms that provide antivirus, the company uses AI to predict cybercrime activities and prevent them.
Other companies that are in the cybersecurity industry are DarkTrace and Cyclance among others.
Alphabet, the parent company of Google, is one of the biggest AI companies in the world. Think of how Google AI helps the world. For example, Google Maps uses AI to provide directions while Search uses AI to provide answers to complicated questions.
Strategies to day trade AI stocks
Ideally, you should day trade AI stocks in a similar way to how you trade other companies. In this, you should do fundamental analysis to identify the key catalysts for these stocks. This can involve looking at news, earnings, and other macro events.
After looking at the fundamentals, you should then move to the next phase, where you focus on technical analysis. This is an important analysis that lets you conduct a good analysis on charts. It involves using technical analysis to predict whether the stock will rise or fall.
A good example of this is in the C3.ai stock chart below. As you can see, the stock formed a double-top pattern, signaling that it will continue falling in the coming weeks.
In this article, we have looked at what AI stocks are and how to invest and trade them. We have also looked at the different types of AI companies.
A rule that we always recommend is that you should avoid investing in companies just because they are making headlines. For your long-term portfolio, you should always focus on profitable companies that have a wide moat.
External useful resources
- Chinese A.I. stocks jump on growing ChatGPT interest, state media warns of risks - CNBC