How to Invest in Artificial Intelligence Stocks and Funds

What you're actually buying when you invest in AI

When you invest in artificial intelligence, you're buying shares of companies that make AI technology, use it to run their business, or sell services built on it. You're not buying "AI" as a single thing. The companies range from chip manufacturers like Nvidia (which makes the processors AI systems run on) to software firms like Microsoft (which has integrated AI into its products) to pure-play AI developers like Anthropic or OpenAI—though most of those are still private and not available to individual investors through a regular brokerage account.

The most practical routes for most investors are buying individual stocks of publicly traded AI companies, buying mutual funds or exchange-traded funds (ETFs) that hold a basket of AI-related stocks, or buying shares in companies that use AI heavily even if AI isn't their main business. Each route has different costs, different tax treatment depending on your account type, and different levels of risk concentration.

Key Takeaways

• AI stocks span chip makers, software companies, cloud providers, and manufacturers—not a single sector—so a single stock carries company-specific risk that a diversified AI fund does not.
• ETFs focused on artificial intelligence charge annual fees (typically 0.4% to 0.75% per year) and hold 30 to 100+ stocks, spreading risk across the industry.
• Buying individual AI stocks requires research into each company's earnings, debt, and competitive position, and concentrates your money in fewer companies.
• Tax treatment depends on your account: gains in a 401(k) or IRA are tax-deferred, while gains in a taxable brokerage account are taxed as capital gains in the year you sell.
• AI is a fast-moving sector where valuations can shift sharply; companies trading at high price-to-earnings ratios carry more downside risk if growth slows.

Individual AI stocks versus AI-focused funds

Buying individual stocks means you own a piece of one company. If you buy 100 shares of Nvidia at $100 per share, you own $10,000 of Nvidia. If Nvidia's stock rises to $120, your position is worth $12,000. If it falls to $80, it's worth $8,000. You control exactly what you own, but you also bear all the risk if that one company stumbles—a product failure, a management change, or a shift in the market can hurt you directly.

Buying an AI-focused ETF or mutual fund means a fund manager or an index buys dozens or hundreds of AI-related stocks on your behalf. You own a tiny slice of each one. If you buy $10,000 of an AI ETF, you might own $50 of Nvidia, $40 of Microsoft, $30 of Broadcom, $25 of Tesla, and so on across 50 to 100 companies. If Nvidia falls 20% but other holdings rise, your loss is cushioned. The trade-off is that you pay an annual fee (typically 0.4% to 0.75% per year) and you don't control which companies the fund holds.

For most investors, a fund is simpler: you make one purchase, you own the sector, and you don't have to research individual companies. For investors who want to concentrate bets on companies they believe will outperform, individual stocks offer that control—but they require ongoing research and carry higher volatility.

Where to buy AI stocks and funds

You buy AI stocks and funds through a brokerage account. Common brokerages include Fidelity, Charles Schwab, E-Trade, Vanguard, and Robinhood. You open an account, link a bank account or transfer money in, and then search for the stock ticker or fund name and place an order. The order executes during market hours (9:30 a.m. to 4 p.m. Eastern Time on weekdays), and the shares appear in your account within one to two business days.

The brokerage holds the shares in your name and sends you statements showing what you own and what it's worth. Most brokerages charge no commission to buy or sell stocks or ETFs, though some charge small fees for mutual funds. If you're buying through an employer 401(k) plan, your plan likely offers a limited menu of funds (sometimes including AI-focused options) rather than individual stocks, and you buy them by directing contributions or transfers within the plan.

Tax treatment in different account types

Where you hold AI investments matters for taxes. In a 401(k) or traditional IRA, gains are tax-deferred: you don't pay tax on the profit until you withdraw the money in retirement. In a Roth IRA, gains are tax-free forever if you follow withdrawal rules. In a taxable brokerage account, you owe capital gains tax on the profit when you sell, at rates that depend on how long you held the stock (long-term gains, held over one year, are taxed at lower rates than short-term gains).

This means the same $10,000 investment in an AI stock can have very different after-tax outcomes depending on the account. If you buy in a 401(k) and the stock doubles to $20,000, you owe no tax until you withdraw. If you buy in a taxable account and the stock doubles, you owe capital gains tax on the $10,000 profit when you sell—roughly $1,500 to $2,000 depending on your tax bracket. For this reason, many investors prioritize tax-advantaged accounts for volatile, high-growth sectors like AI.

How to research individual AI companies

If you're buying individual stocks, start with the company's most recent quarterly earnings report and annual 10-K filing, both available free on the SEC's EDGAR database or on the company's investor relations website. The earnings report shows revenue, profit, and guidance (what the company expects to earn next quarter). The 10-K shows the full financial picture: debt, cash on hand, competitive risks, and how much of revenue comes from AI versus other products.

Compare the stock price to earnings (the price-to-earnings ratio or P/E) against the company's historical average and against competitors. A company trading at a P/E of 50 is betting on much faster growth than one at a P/E of 20. If growth slows, the high-P/E stock falls harder. Read analyst reports from major brokerages (available free on most brokerage websites) to see what professionals think about the company's competitive position and growth prospects. None of this guarantees the stock will rise, but it tells you what you're betting on and how much risk you're taking.

Common AI investment categories and examples

AI investments fall into several overlapping categories. Chip makers like Nvidia, AMD, and Intel design or manufacture the processors that run AI systems—they benefit from AI demand but face competition and cyclical downturns. Cloud providers like Amazon Web Services (AWS, owned by Amazon), Microsoft Azure, and Google Cloud rent computing power to companies building AI applications—they have recurring revenue but face pricing pressure. Software and services companies like Microsoft, Salesforce, and Adobe have added AI features to existing products or built new AI tools—they have established customer bases but face execution risk in rolling out AI features.

AI-native companies like Palantir (data analytics) or CrowdStrike (cybersecurity using AI) were built around AI from the start—they can grow fast but often trade at high valuations and face competition from larger, better-capitalized rivals. Broad-market ETFsAI-focused ETFs

Risk and volatility in AI investing

AI is a fast-moving sector where expectations shift quickly. A company can announce a breakthrough product and see its stock jump 15% in a day, or miss earnings guidance and fall 20%. This volatility is higher than the overall stock market, which means your money can grow faster but can also shrink faster. If you need the money in the next two to three years, AI stocks carry real risk that you'll be forced to sell at a loss.

Additionally, many AI stocks trade at high valuations (high price-to-earnings ratios) because investors expect rapid growth. If growth slows or competition intensifies, these stocks can fall sharply. Diversification—either through an AI fund or by holding AI stocks alongside other investments—reduces the risk that one company's failure will derail your portfolio. Starting with a smaller position and adding over time, rather than investing a large lump sum all at once, also reduces the risk of buying at a market peak.

Frequently Asked Questions

Can I buy AI stocks in my 401(k)?

Most 401(k) plans offer a limited menu of mutual funds and ETFs rather than individual stocks. Some plans include AI-focused or technology-focused funds. Check your plan's investment options on your employer's benefits website or call your plan administrator. If your plan doesn't offer AI exposure, you can buy AI stocks or funds in an IRA or taxable brokerage account outside the 401(k).

What's the difference between an AI ETF and an AI mutual fund?

Both hold a basket of AI stocks, but ETFs trade like stocks (you can buy and sell during market hours at changing prices) while mutual funds trade once per day at a fixed price set after the market closes. ETFs typically have lower annual fees (0.4% to 0.75%) than actively managed mutual funds (0.5% to 1.5% or higher). For most investors, an ETF is simpler and cheaper.

How much of my portfolio should be in AI?

That depends on your age, risk tolerance, and time horizon. A younger investor with 30+ years until retirement can afford more volatility and might put 10% to 20% in AI. An investor nearing retirement should probably keep AI to 5% or less. A common rule is to own enough AI that a 20% drop in AI stocks won't force you to change your retirement plans. Start smaller and increase if you're comfortable with the volatility.

Is it better to buy one big AI stock or an AI fund?

A fund spreads risk: if one company stumbles, others may rise and offset the loss. A single stock concentrates risk but lets you bet on a company you believe in. Most investors benefit from a fund, especially if they're new to investing. If you want both, buy a core position in a fund and use individual stocks for a smaller portion of your AI allocation.

When should I sell an AI stock or fund?

Sell when your original reason for buying no longer holds true—the company's competitive position weakened, growth slowed, or you need the money. Don't sell just because the price dropped; short-term volatility is normal in AI. If you're holding in a taxable account, consider the tax impact: selling after holding for over one year triggers lower long-term capital gains tax than selling sooner.