Five Factors to Consider when Buying an AI based Stock in India

Artificial Intelligence has exploded onto the scene in the last few months. Companies are actively looking to involve AI in their daily processes, new job titles tailored towards ChatGPT ( anyone else searched how to become a prompt writer?) and the stock market dancing to the tune of AI companies.

It’s the current big thing and AI is driving the future. So for the everyday person, with little knowledge of the subject, they might ask:

What stocks to buy for artificial intelligence?

While we’ve elaborated on it in a previous blog post , some companies like Affle, Persistent Systems, and Saksoft are AI stocks to watch out for.

But just like how your portfolio needs to be diversified, it’s not like a single stock is going to be your answer. You can’t just have a basic understanding of it - there’s still more to take into consideration.

Five Factors to consider when looking at an AI-Based stock in India

While investing in an AI-based stock is very much like investing in any other stock. You have to understand the future of AI can be compared to the deep sea - so much of it is yet to be explored. So, understand the different aspects to an AI stock before investing in it like the following:

1. Consider their future growth potential

With something as niche as AI and AI companies, it's important to understand everything the company offers and the industries they service. AI is something that is still very much unknown. So study how much the company is investing in R&D, if they have any good patents, their portfolio of products and clients. More importantly, figure out if it’s a company you can truly believe in.

2. Dividend Earnings

Dividend Earnings are one of the best ways for any investor to understand the financial state of the company. Have a look at the AI stock company’s dividends over the last few years, its ROI and the regularity of its dividend payouts.

3. Level of Risk

The future of AI is risky as are the companies focused on it. There’s no doubt that it’s deciding future trends - but they also come with a big ‘what if’. After all, a vision is what drew investors to the Dotcom bubble before it burst in 2002. Then again, the same questions were asked about the internet in the 90s. Investing in an AI stock can be riskier than others and understanding the totality of that risk is key.

4. Company History

Understanding a company’s growth potential comes from analyzing its past. Have a look at their growth, financial performance and P/E ratio, share price and stand-out news over the previous three to five years.

5. Ethical implications

With great power comes great responsibility and that’s the thing about Artificial Intelligence - it comes with a nice slice of ethical implications. Just recently, it was announced that a rural Australian mayor would be suing ChatGPT over a false prompt response generated that damaged his reputation. One of the biggest news earlier this year was a class action by artists against AI giants (Midjourney, DeviantArt) after the platforms had been under public scrutiny over copyright and ethical issues.

So it’s important to understand each aspect of AI stocks before you consider investing.

You’re probably curious - if we’re looking to invest in AI, is it possible to predict the stock market using AI?

Did you read all the above and run to ChatGPT because you thought, “ Man, I wish I didn’t have to do all that,”? Well, to a certain extent, some AI tools have reached a point where they can predict the stock market. However, it has its limitations and nothing can be 100% error-free.

We recommend that you complement it with your own financial analysis and/or take the help of an advisor.