From Hype to Opportunity: Understanding AI Investing

AI has taken over headlines: Are investors positioned to capture its upside, or is it just another tech bubble? And we increasingly hear members ask: how can their investment strategies and portfolios take advantage of the growth of AI?

On the institution side, capital is pouring in: PitchBook data shows AI startups attracted 35.7% of all global venture deal value in 2024, an unprecedented share for a single sector. However, identifying the most strategic and thoughtful way to invest isn’t always straightforward:

But crafting an investment strategy is not so clear-cut:

• The S&P 500, which is the most common benchmark for diversified equity portfolios, is heavily concentrated in technology, with the sector now representing about one-third of the index. A handful of mega-cap tech firms, including Alphabet, Amazon, Apple, Meta, Microsoft, and especially NVIDIA, now account for about a third of the S&P 500’s total market cap.

• AI leaders in the public equity markets have already surged in price, raising questions about valuations and volatility.

• Private AI deals are often inaccessible or extremely expensive.

• Additionally, when it comes to private markets, such as angel investing, it may be difficult to assess the quality of the deal flow. As Tracy Gallagher, Arta’s Global Head of Private Markets, explains: “The number of established true ground-up AI companies is maybe a dozen… many of the pure plays are early-stage ventures, which is extremely concentrated and risky.”

We sat down with Arta’s investment experts to examine and discuss how people can invest smarter and reach their investment goals, with the rise of questions around the AI challenges and opportunities.

Tailor AI investments to your goals and conviction

Like any investing strategy, it is very personal, and investors should tailor it to their level of conviction in AI, risk tolerance, and financial goals. Here is an outline of different ways investors can explore investment opportunities that take advantage of the AI growth that fit their risk tolerance.

High growth seekers with high conviction & risk tolerance in AI

Investment Goal: Maximize return potential as much as possible by getting closest to breakthrough AI technologies.

Risk Tolerance: They are comfortable with holding investments for over many years

Ways to invest:

1. Invest in early-stage startups before they make headlines. These are the companies building tomorrow’s AI breakthroughs, and if one takes off, the returns can be very significant. But here’s the catch: most startups fail, and it’s very hard to know which ones will succeed. That’s why, as Emmy Sakulrompochai, Global Head of Investment Advisory at Arta, advises: “If you don’t know the space well, don’t pick startups yourself; go with a manager who has the expertise.”

2. Invest alongside venture capital funds that understand AI. These funds invest in many early-stage AI startups at once, so investors don’t have to bet on a single winner. This spreads out the risk — even if most companies don’t make it, one or two successes can still drive strong returns. Additionally, it is often more effective to work with experienced fund managers with strong track records. There is research showing that top-quartile venture funds outperformed median funds by nearly 14% for vintage years 1996–2019 because of the manager quality.

3. Explore customized products that take advantage of the high growth dynamic of AI. “With structured products, investors can tailor the type of risks that they want to get exposed or avoid, and align the product to their investment hypothesis,” said Matt Linker, Arta’s Head of Derivatives. For example, if one wants to build onto Vinod Khosla’s hypothesis that medicine will be transformed by AI, then Arta’s derivatives team could build a structure around medAI companies that the investor is excited about. The product could take different forms, but for a hypothetical investor that is excited about Medtronic and Teledoc, the team could build a 2-year structured note offering 270% upside participation tied to the lower performer, with your first 30% of potential downside protected. This means that the investor could benefit from potential growth while managing risks and align with their convictions.

Balanced growth seekers: capture AI upside while reducing downside risk

Investment Goal: Participate in AI’s growth while keeping a balanced portfolio

Risk Tolerance: They are comfortable with some volatility, but want to avoid concentrating too heavily in one sector or a handful of companies.

Ways to invest:

1. Invest in more established companies that are benefiting from AI Tracy Gallagher explains, “Enterprise software is one of the industries best set up to benefit from AI tooling.” This is especially true in industries like industrials and healthcare, which are sectors that may not call themselves “AI companies,” but they stand to gain from productivity boost from the technology. Private equity, funds that buy established businesses and improve them before selling or taking them public, is a compelling way to invest in the AI productivity boost to more established companies that still have a strong growth trajectory. Private Equity fund managers take already-strong companies and make them even better by improving operations, guiding strategy, and scaling growth. For investors, this means PE can provide exposure to AI’s upside through more diversified and less speculative businesses. For instance, Vista Equity Partners has created a proprietary platform called the Agentic AI Factory, which is a system designed to integrate advanced AI tools across its enterprise software portfolio to help companies automate workflows and accelerate innovation.

2. Consider customized products that optimize for income For investors who want to avoid the extreme volatility of AI stocks, or worry that much of the upside may already be “priced in”: yield-focused structured products can be an attractive alternative. Instead of betting on continued stock rallies, these instruments let you earn meaningful income while cushioning against potential downside focused on AI related hypotheses. “For example, we created a structure linked to NVIDIA and AMD that allowed investors to earn a 26.05% annual yield, as long as the stocks didn’t fall below a 30% income barrier and principal protection level. Even if the share prices don’t increase or dip moderately, investors still have exposure to steady income,” said Ykat Alferova, Arta’s Senior Derivatives Structurer.

Yield and capital preservation focused investors

Investment Goal: Participate in AI’s growth minimizing potential risks, even if it means that there is lower potential upside

Risk Tolerance: Capital preservation comes first, although no investments are risk-free. They are not comfortable with much volatility.

Ways to invest:

1. Invest in infrastructure that is essential to powering AI. Unlike investing directly in volatile AI stocks or early-stage startups, infrastructure exposure is about the backbone that makes AI possible, such as power generation, data centers, and grid upgrades. These are physical assets with long-term contracts often linked to inflation-adjusted rates, which helps preserve purchasing power over time. Because they generate predictable cash flows, infrastructure investments are less dependent on speculation or market sentiment. Private infrastructure funds also tend to optimize for regular income distribution and return of capital. For wealth-preserving investors, they offer a way for investors to participate in AI’s growth while keeping downside risk limited.

2. Explore industries that are less likely to be disrupted. If an investor’s main priority is principal protection, then industries with lower disruption risk tend to be more attractive than adding more investments into AI. Most investors already have AI in their portfolio through broad-based index funds like QQQ or SPY. As policy and competitive landscapes shift, AI carries a lot of uncertainty that makes the investments inherently more risky. For example, industries like real estate for essential goods and services, such as farming, family housing, hospitals, are more stable and resilient against disruption.

Many paths to AI investing

AI has emerged as one of the most important themes in both business and investing today. Yet the ways to participate are varied, from large-cap public equities and venture capital, to structured products and infrastructure. Each comes with its own opportunities and risks.

The conversation is no longer just whether to consider AI. It’s about designing and identifying a path that works well alongside investors’ existing strategies, goals, and risk tolerance. 

At Arta, our team’s here to share perspectives and open access to opportunities that were once limited to a select few, so that more investors can make informed decisions about how AI might fit into their broader approach.