How to Invest in AI Stocks: Step-by-Step Guide 2025

Investing in AI stocks can be an exciting way to participate in the artificial intelligence revolution. This step-by-step guide will walk you through everything you need to know to start investing in AI stocks, from opening a brokerage account to building a diversified portfolio. For a comprehensive overview, see our complete guide on investing in AI stocks.

Step 1: Understand What AI Stocks Are

Before investing, understand what makes a company an "AI stock." These are companies that:

• Develop AI technology and software
• Manufacture AI hardware (chips, processors)
• Provide AI cloud services and infrastructure
• Integrate AI into their products and services
• Use AI for competitive advantage

The AI stock universe includes major tech companies like NVIDIA, Microsoft, and Google, as well as smaller pure-play AI companies.

Step 2: Assess Your Risk Tolerance

AI stocks are typically more volatile than traditional stocks. Before investing, honestly assess:

• Can you handle 30-50% portfolio swings?
• What's your investment time horizon?
• How much can you afford to lose?
• What percentage of your portfolio should be in AI stocks?

Step 3: Choose Your Investment Approach

Option A: Individual AI Stocks

Investing in individual stocks gives you direct exposure to specific companies. This offers the highest potential returns but also the highest risk.

Best for: Investors who want to pick specific companies and are comfortable with higher risk.

Option B: AI ETFs

Exchange-traded funds (ETFs) provide instant diversification across multiple AI companies. Popular AI ETFs include:

• BOTZ - Global X Robotics & AI ETF
• ROBO - ROBO Global Robotics & Automation ETF
• AIQ - Global X Artificial Intelligence & Technology ETF
• IRBO - iShares Robotics and Artificial Intelligence ETF

Best for: Investors who want diversification and lower individual stock risk.

Option C: Hybrid Approach

Combine both: use AI ETFs for 60-80% of your AI allocation (core holdings) and individual stocks for 20-40% (satellite positions).

Best for: Most investors—provides stability with upside potential.

Step 4: Open a Brokerage Account

To invest in AI stocks, you'll need a brokerage account. Consider these factors when choosing:

• Fees: Commission-free trading is standard now
• Minimums: Some brokers require minimum deposits
• Platform: User-friendly interface and mobile app
• Research Tools: Access to company research and analysis
• ETF Access: Can you buy the AI ETFs you want?

Popular brokers include Fidelity, Charles Schwab, E*TRADE, TD Ameritrade, and online platforms like Robinhood. Choose one that fits your needs and experience level.

Step 5: Research AI Stocks

Before investing, research potential AI stocks. Key factors to evaluate:

• AI Revenue Exposure: What % of revenue comes from AI?
• Market Position: Is the company a leader or follower?
• Competitive Moat: Does it have proprietary technology or data?
• Financial Health: Strong balance sheet and cash flow?
• Growth Prospects: Is the company growing and expanding?
• Valuation: Is the stock reasonably priced?

For specific stock recommendations, see our guides on the best AI stocks to invest in 2025 and top AI stocks to invest in 2025.

Step 6: Build Your Portfolio

When building your AI stock portfolio:

1. Determine Allocation: Decide what % of your portfolio will be AI stocks (typically 10-20%)
2. Diversify Categories: Include different AI categories:
   • AI infrastructure/hardware (e.g., NVIDIA)
   • Cloud platforms (e.g., Microsoft, Amazon)
   • AI software (e.g., Palantir, C3.ai)
   • AI-enabled companies (e.g., Tesla, Apple)
3. Position Sizing: No single stock should exceed 5-10% of your total portfolio
4. Start with ETFs: Consider starting with AI ETFs for instant diversification
5. Add Individual Stocks: Add individual stocks as you learn and develop convictions

Step 7: Execute Your Trades

When you're ready to invest:

1. Start Small: Begin with smaller positions to get comfortable
2. Use Dollar-Cost Averaging: Invest fixed amounts regularly (e.g., monthly) to reduce timing risk
3. Set Limit Orders: Consider using limit orders instead of market orders for better price control
4. Monitor Positions: Track your investments but avoid over-trading

Step 8: Monitor and Manage Risk

Once invested, ongoing monitoring is crucial:

• Watch Concentration: Ensure you're not over-exposed to any single stock or sector
• Monitor Correlation: Many AI stocks move together—understand your portfolio's correlation risk
• Track Volatility: Ensure portfolio volatility matches your risk tolerance
• Set Drawdown Limits: Have a plan if your portfolio declines significantly
• Stay Informed: Follow news about your holdings and the AI sector

Step 9: Rebalance Regularly

Rebalance your AI allocation quarterly or semi-annually to maintain your target allocation. This means:

• Selling winners that have grown beyond target allocation
• Buying more of laggards that are below target
• Maintaining proper diversification

Common Mistakes to Avoid

• Over-concentration: Don't put too much in AI stocks or any single stock
• Chasing Performance: Don't buy stocks just because they're going up
• Ignoring Valuation: High growth doesn't justify any price
• Over-trading: Don't trade too frequently—let winners run
• Ignoring Risk: Always consider downside risk, not just upside potential

Next Steps

Now that you know how to invest in AI stocks, take these next steps:

1. Assess your risk tolerance and determine your AI allocation
2. Open a brokerage account if you don't have one
3. Research AI stocks and ETFs
4. Start with a small position or ETF
5. Build your portfolio gradually
6. Monitor and rebalance regularly

For more detailed information, see our comprehensive guide on investing in AI stocks, which covers portfolio construction, risk management, and investment strategies in detail. You can also explore our guides on the best AI stocks to invest in 2025, top AI stocks to invest in 2025, and best AI stocks to invest in.

Conclusion

Investing in AI stocks can be rewarding, but it requires careful planning, research, and risk management. Start small, diversify properly, and always consider your overall portfolio allocation. The AI revolution is just beginning, and investors who approach it thoughtfully are best positioned to capture its potential while protecting their capital.