Investing in artificial intelligence

Investing
in artificial intelligence

Technology
& Innovation

Considering
the potential benefits and risks of the latest tech revolution.

It’s no
surprise that the role of artificial intelligence (AI) is on the rise.
According to McKinsey’s “The State of AI” report, 78% of respondents say their
organizations use AI in at least one business function, up from 55% a year
earlier.

AI is being
adopted across multiple industries, from manufacturing and logistics to banking
and healthcare. It’s not just a product of technology companies anymore.

Given its
increasing adoption, there’s a chance your portfolio already contains
investments related to AI. So, what does that mean for you? Does it all point
to opportunity, or should you proceed with caution?

Evaluating
the potential benefits

As with any
transformative technology, companies leading AI development or adoption may
experience faster growth than those that don’t. They sit at the forefront of
innovation, where growth may follow. Including AI-driven companies in your
portfolio may provide exposure to high-growth potential. And the opportunity is
expected to be significant: A United Nations Trade and Development report
projects AI could become a $4.8 trillion market by 2033, up from $189 billion
in 2023.

Investing in
AI doesn’t necessarily mean having a tech-heavy portfolio. Because AI is being
adopted in many sectors, these investments can be diversified by nature. In
healthcare, AI is being used for diagnostics and drug discovery. In
manufacturing, robotics and maintenance. In retail, personalization and supply
chain optimization. Companies leveraging AI within their industries may have a
competitive edge worth considering.

Recognizing
the risks

One of the
most highly publicized risks of AI is misinformation. Generative AI can produce
content that sounds authoritative but isn’t always accurate. Because it learns
from past information, AI can pick up and reinforce biases hidden in the
historical. If companies fail to manage these risks, they may face consequences
like loss of credibility and diminished customer trust, which can affect market
performance.

Privacy is
another major concern as governments tighten AI regulations. Future compliance
requirements may require companies to invest in auditing and safety measures.
That can slow the pace of AI adoption and increase compliance costs, which can
put pressure on profit margins.

Finding
balance

Backed by
the most widely held AI stocks, the Morningstar Global Artificial Intelligence
& Big Data Consensus Index outperformed the broader Morningstar Global
Target Market Exposure Index by 35% from November 2022 to May 2025.* However,
this outperformance came with higher volatility and steeper declines,
reflecting the risk of investing in emerging, high-growth technologies.

There are
multiple vehicles through which you can invest in AI. One approach is to
potentially reduce your risk by investing in exchange-traded funds or mutual
funds that offer broader exposure to AI. This approach relies less on picking a
winner and more on investing in AI’s overall potential across industries. You
may also want to consider your personal values, to ensure you’re comfortable
with where your money is invested.

As with any
investment, it’s important to consider the benefits and risks in alignment
with your big-picture financial situation and goals. AI may be an
exciting investment prospect, but it deserves the same careful considerations
as any other investment in a well-diversified portfolio.

Pendle Hill
Advisors is proud to contribute to the Montgomery County News with our weekly
curated financial news and topics. If you have any questions about the markets,
your financial plan, or anything, please feel free to reach out to our office
for a no cost initial consultation.

Kent Pendleton, AAMS®

Financial Advisor, RJFS

Pendle Hill Advisors LLC

14375 Liberty St, Ste 109 | Montgomery,
TX 77356

T 936-297-8267

Kent.Pendleton@raymondjames.com | www.raymondjames.com/pendlehilladvisors

Material
created by Raymond James for use by its advisors. Securities offered
through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment
advisory services are offered through Raymond James Financial Services
Advisors, Inc. Pendle Hill Advisors is not registered broker dealers and is
independent of Raymond James Financial Services.

*This
article is for informational purposes only and is not a recommendation. There
is no assurance the trends mentioned will continue or that the forecasts
discussed will be realized. Past performance may not be indicative of future
results. The market value of securities fluctuates and you may incur a profit
or a loss. This analysis does not include transaction costs which would reduce
an investor’s return. The Morningstar Global Artificial Intelligence & Big
Data Consensus Index is a thematic equity index designed to provide exposure to
companies that are widely held by funds targeting the Artificial Intelligence
(AI) and Big Data investment themes. The Morningstar Global Target Market
Exposure Index is a broad equity benchmark designed to represent the
performance of large- and mid-cap stocks across both developed and emerging
markets. There is no assurance any investment strategy will be successful.
Investing involves risk and investors may incur a profit or a loss. The
companies engaged in the technology industry are subject to fierce competition
and their products and services may be subject to rapid obsolescence.
Diversification does not ensure a profit or protect against a loss.

Sources: McKinsey.com; Morningstar.com; UNCTAD.org