Investors are looking at ways to invest in artificial intelligence. You can buy stocks, funds, and exchange-traded funds (ETFs) to invest in positions related to AI. However, there are other investments that may be worth looking at for industry sector investing.
How do you invest in AI and how do you get leverage? I have watched leveraged ETFs for years. They can move up or down quickly. The ETF SOXL [i], which is a semiconductor leveraged 3X BULL position, has been down for a while but is making a move up with almost a 20% gain Friday. Will it last?
With a leveraged ETF, investors are usually hedging to capture gains or hedging against loss in positions by betting on a big move in a sector but do not want an expiration date like an option. From January until last week, the SOXL has generally channeled in a price range, but a breakout just happened. As one of the pillars of AI, this Semiconductor ETF position could double in a few days or weeks as speculators come in. See Yahoo chart. [ii] SOXL has been has high as $68 dollars in the last 2 years.
The performance of artificial intelligence (AI) relies on several industry sectors, including semiconductors. Here are some key sectors that contribute to AI performance:
1. Semiconductors: Semiconductors are crucial for AI due to their ability to power and process data in electronic devices. Advanced semiconductors, such as graphic processing units (GPUs) and application-specific integrated circuits (ASICs), are often utilized in AI applications for their high computational power and parallel processing capabilities.
2. Data Storage: AI requires significant amounts of data for training and inference. Thus, storage technologies, including solid-state drives (SSDs) and cloud-based storage solutions, play a vital role in providing the necessary capacity and access speed for AI systems.
3. Cloud Computing: Cloud computing platforms are instrumental in AI performance, enabling access to vast computational resources and facilitating the training and deployment of AI models. Providers like Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform offer AI-specific services and infrastructure for developers and businesses.
4. Networking and Connectivity: AI applications often involve large-scale data processing and real-time communication. Networking technologies, such as high-speed internet connectivity, Ethernet, and wireless networks, ensure seamless data transmission and enable AI systems to interact with each other and the external environment.
5. Software and Algorithms: AI performance heavily relies on the development of sophisticated algorithms and software frameworks. These include machine learning libraries (e.g., TensorFlow, PyTorch), neural network architectures, optimization techniques, and AI development platforms that streamline the implementation and deployment of AI models.
6. Robotics and Automation: In certain AI applications, robotics and automation technologies are essential. They involve hardware components such as sensors, actuators, and robotic arms that enable physical interaction with the environment, enabling AI systems to perform tasks autonomously.
It's worth noting that the AI ecosystem is multidisciplinary and spans across various sectors, including computer science, mathematics, data science, and engineering. Collaborations and advancements in these sectors contribute to the overall performance and capabilities of AI systems. Further there are many funds that are now available that focus on AI specifically. [iii] For those who want to invest in AI and lower the risks that come with leveraged funds, low-fee diversified ETF funds that own stocks in the 6 areas above is a bit safer bet.
How some investment managers may play this stock.
SOXL is the ticker symbol for the Direxion Daily Semiconductor Bull 3X Shares, which is a leveraged exchange-traded fund (ETF). [iv]
Leveraged ETFs aim to provide amplified returns relative to the performance of an underlying index or sector on a daily basis. In the case of SOXL, it seeks to deliver three times (3x) the daily return of the PHLX Semiconductor Sector Index (XSOX). It's important to note that leveraged ETFs are designed for short-term trading and are not intended for long-term buy-and-hold strategies.
Due to the compounding effect, the performance of a leveraged ETF can differ significantly from the performance of the underlying index over longer periods, especially during volatile markets. Therefore, they require active management and monitoring.
Before investing in any leveraged ETF or financial instrument, it's crucial to thoroughly research and understand its characteristics, risks, and suitability for your investment goals. It's recommended to consult with a financial advisor or broker to get personalized advice based on your specific circumstances.
Discuss with licensed professional before making any important decision. The author holds various investments in technology related to AI. If the holdings of an ETF do not rise, the ETF can still lose value. Also, it is always best to keep a diversified portfolio and not to have too much exposure to any one sector or industry using smart asset allocation into blue chip investments.
Commissioner George Mentz JD MBA CILS CWM® is an international lawyer, speaker, educator, tax-economist, and CEO of the GAFM Global Academy of Finance & Management ®. The GAFM is a ESQ accredited graduate body that trains and certifies professionals in 150+ nations under CHEA ACBSP and ISO 21001 standards. Mentz is also an award winning author and graduate law professor of wealth management for a top U.S. law school.
[i] Semiconductor Bull and Bear 3X ETFs | SOXL SXS | Direxion
[ii] Direxion Daily Semiconductor Bull 3X Shares (SOXL) Stock Price, News, Quote & History - Yahoo Finance
[iii] RPT-Wall St Week Ahead-Artificial Intelligence Gives Real Boost to U.S. Stock Market | Newsmax.com
[iv] Leveraged ETFs: The Potential for Bigger Gains—and Bigger Losses (investopedia.com)
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