AI Investing 101: How to Choose the Right Stocks for Your Portfolio

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Every tech company is putting their best minds to work to tap into the artificial intelligence (AI) boom. But what is AI? As the name suggests, AI is a computer that tries to imitate the human intelligence processes of understanding, reasoning, learning, and interacting with information. So far, we’ve seen AI in natural language processing, speech recognition, and machine vision. The Alexa and Siri you talk to are the first AI applications. But they are not AI stocks.

investments in AI stocks

But the AI frenzy we’re talking about is generative AI that goes beyond recognizing your speech and finding answers from the internet to creating its own content. So, the word is generative. A computer system that could generate codes and images was revolutionary. Most investors don’t understand the difference and just rush to invest in anything that spells AI.

If you look at AI from an investment perspective, see if the AI segment affects the company’s bottom line. For example, Shopify added AI-generated product descriptions as a part of its platform to help merchants set up their online stores faster. Will it improve Shopify’s revenue? We don’t see any immediate impact on its subscriptions.

Now consider, is Shopify the tech stock that can rally the AI boom? No.

So, how do you choose the right AI stocks for your portfolio?

Three AI stocks for your portfolio

Look for companies that sell AI as a product and support the adoption of AI and future generations of AI. Here are three stocks that will see a direct impact on their earnings from the adoption of AI.

Nvidia stock

Nvidia (NASDAQ:NVDA) is one of the first few hardware companies to make AI possible. The company designs graphics processing units (GPUs) that handle the high-performance computing workloads needed to power AI. AI systems are trained on Nvidia GPUs. It has a full stack of data center GPUs, computer GPUs, network infrastructure, and automotive GPUs that can support AI computing from the cloud to the edge.

Nvidia estimates the AI ecosystem to be a $1 trillion addressable market, including the $300 billion data center market and the $300 billion automotive market. The company also guided second-quarter revenue to grow 64% year over year to US$11 billion, driven by data center revenue.

So, Nvidia’s 38% jump in stock price at the end of May makes sense.

Nvidia stock is trading at a very high valuation, 39.6 times its sales per share and 55.3 times its forward earnings per share. Add this stock to your watchlist and buy it on the next dip.

BlackBerry stock

As Nvidia takes the AI rally, BlackBerry (TSX:BB) stock didn’t, perhaps because investors didn’t see a direct connection. BlackBerry stock jumped 18% last week, but that was due to a recovery in its cybersecurity business.

BlackBerry is a cybersecurity and endpoint management solutions provider. It is now looking to secure hyper-connected Internet of Things (IoT) systems through cloud and endpoint cybersecurity, QNX operating system, and IVY connectivity platform. This convergence could grow the IoT opportunity fivefold for BlackBerry.

The increasing number of cyberattacks and malware has created a shortage of cybersecurity personnel. And with generative AI like ChatGPT and Bard snooping on online data files, the need for cybersecurity is growing. Many experts are at risk of hackers using generative AI. Advanced technology requires advanced cybersecurity.

BlackBerry expects its cybersecurity revenue to increase at a compound annual growth rate of 12% through fiscal 2026, making it a stock to tap into AI growth.

Hive Blockchain

Today, we discuss the security issues that come from ChatGPT. Experts warn users not to share confidential information with these AI chatbots because they are programmed to use your data to learn more about you. Companies looking to use generative AI for their secure database can now use Hive Cloud services to train their AI models for a fee.

Yes, it’s the same Hive Blockchain Technologies (TSX:HIVE) that mines Bitcoin. The company has created a new revenue stream for GPU-powered data centers with Hive Cloud.

Before investing in a trend, see how the company can make money from the trend.