The Future of AI Stocks: What to Expect by 2025
The artificial intelligence (AI) sector has been a hotbed of activity over the past year, with stocks in this space experiencing remarkable growth. Companies like NVIDIA and SoundHound have captured significant attention due to their impressive spikes in market value. As we look ahead to 2025, many are left wondering: what does the future hold for AI stocks?
The Current Landscape of AI Stocks
Despite some skepticism regarding the sustainability of the AI hype, the industry continues to thrive. Concerns about geopolitical tensions and semiconductor supply chain issues have not deterred the performance of AI companies. In fact, many are seeing robust growth, indicating a strong underlying demand for AI technologies.
3 Best-Performing AI Stocks
As of February 26, 2025, here are three standout performers in the Indxx Global Robotics & Artificial Intelligence Thematic Index, ranked by their one-year returns:
Upstart Holdings Inc. (UPST)
Upstart is revolutionizing the lending landscape with its AI-driven marketplace that connects users with banks and credit unions for personal, auto, and refinance loans. The platform also offers home equity lines of credit and small relief loans. With nearly three million customers, Upstart leverages AI technology to help lenders approve more applicants, particularly from marginalized communities. This focus on inclusivity has positioned Upstart as a leader in the fintech space.
SoundHound AI Inc. (SOUN)
SoundHound AI specializes in voice-based AI products, creating innovative solutions for industries such as food service, automotive, and hospitality. Their voice assistant technology allows customers to place orders, inquire about hours, and make reservations seamlessly. With a client roster that includes major brands like Hyundai, Pandora, and Krispy Kreme, SoundHound is making significant strides in enhancing customer experiences through AI.
NVIDIA Corp (NVDA)
NVIDIA has been a pioneer in the tech industry since its inception in 1993, initially focusing on 3D graphics for gaming. The company has since expanded into AI applications, starting its journey in this domain back in 2012. Today, NVIDIA is at the forefront of AI innovation, developing cutting-edge software, chips, and services that are integral to the AI ecosystem. Their continued investment in AI technology positions them as a key player in the future of the industry.
Understanding AI Stocks
AI stocks refer to shares of companies that are involved in the development and implementation of artificial intelligence technologies. The applications of AI are vast, ranging from voice recognition software to autonomous vehicles. According to Haydar Haba, founder of Andra Capital, there are numerous publicly traded companies with substantial AI interests that stand to benefit from the industry’s growth.
AI stocks generally fall into two categories: established blue-chip technology companies that have invested in AI or partnered with AI developers, and smaller, experimental firms focused solely on AI development. While smaller companies may seem like direct investments in AI, analysts like Michael Brenner from FBB Capital Partners caution that they may not always be the best choice. The complexity and resource demands of large language models often necessitate partnerships with larger firms that possess the infrastructure to scale.
How to Invest in AI Stocks
For those new to stock trading, the first step to investing in AI stocks is to open a brokerage account. Once you have an account, you can decide how you want to gain exposure to AI stocks. Investing in individual AI stocks can offer high returns but comes with significant risk and requires thorough research.
Alternatively, you might consider investing in AI-focused exchange-traded funds (ETFs). These funds pool investments in a basket of companies involved in AI development, providing a diversified approach to investing in the sector.
Finding AI ETFs
Investors can gain exposure to AI stocks through various ETFs that focus on companies engaged in AI development and implementation. Notable AI stock indexes, such as the Indxx Global Robotics & Artificial Intelligence Thematic Index and the Nasdaq CTA Artificial Intelligence & Robotics Index, are tracked by several ETFs.
To find AI ETFs, you can use an ETF screener and search for terms like “artificial intelligence,” “machine learning,” or “AI.” However, it’s crucial to conduct thorough research, as some ETFs may use AI-powered trading strategies without directly investing in AI stocks.
Are We in an AI Bubble?
The question of whether we are in an AI bubble is a topic of debate among analysts. Some believe that the current enthusiasm for AI may be overblown, while others argue that the market is still grounded in reality. Haba points out that while AI has become a buzzword driving share price premiums, not all companies have demonstrated effective use of advanced techniques. In the private market, substantial investments are flowing into AI companies that lack product-market fit, raising concerns about the sustainability of such valuations.
Brenner acknowledges that while some AI-linked companies have seen their valuations soar without corresponding changes in business fundamentals, he does not believe this constitutes a bubble. Many technology stock indexes remain below their previous highs, suggesting that the market may not be overheated.
Should You Invest in AI Stocks?
Investing in AI stocks requires careful consideration. Targeted investments can be riskier than broader investments, such as S&P 500 index funds, which historically yield an average annual return of about 10% (excluding inflation). A prudent guideline is to limit individual stock investments to no more than 10% of your overall portfolio.
For those financially secure enough to invest in individual stocks, AI stocks can be a compelling option. Brenner suggests that retail investors should consider how machine learning will impact the stocks they own. For those with the capacity to handle the volatility of individual stocks, incorporating AI-related companies into a diversified portfolio could be a strategic move.
As the AI landscape continues to evolve, staying informed and making thoughtful investment decisions will be crucial for navigating this dynamic sector.