Nov
03
2025
A Black man in glasses sits at a desk, looking thoughtfully at a laptop with his hand on his chin.

Top AI Stocks to Invest In: 2025 Guide

By | invest | Comments Off on Top AI Stocks to Invest In: 2025 Guide

Artificial intelligence (AI) is reshaping industries from health care to finance, and investors are increasingly investing in AI stocks as a way to capture that growth. AI stocks represent companies that are building or leveraging AI technology, including using cutting-edge algorithms, creating large language models or other generative AI, designing advanced chips, or applying AI to transform traditional business processes like manufacturing.

In this 2025 AI guide, we’ll spotlight some promising AI investment opportunities, helping you navigate a rapidly changing market, which can also be volatile and risky. To keep pace with new developments, this guide is updated quarterly, to help ensure you always have the latest insights at your fingertips.

Key Points

•   AI stocks represent companies that develop or implement AI technology, e.g., large language models, designing advanced chips, or applying AI to transform business processes.

•   Investing in AI stocks may capture growth in a rapidly changing market, though these stocks can be volatile and increase risk exposure.

•   Top AI stocks by market cap, as of Q4 2025, include Nvidia, Microsoft, Alphabet, Amazon, Meta Platforms, and more.

•   Investors can invest in AI stocks through direct stock purchases or by investing in AI-focused ETFs.

•   Evaluating AI companies involves looking at fundamentals like revenue, growth, and debt, as well as risks such as volatility, competition, and regulatory issues.

What Are AI Stocks and Why Invest in Them?

The term “AI stocks” generally refers to stocks and companies that are investing in the AI space. This could be companies that are using generative AI, or companies that are building the infrastructure that helps support the growth of this sector.

There are many ways to seek returns while stock trading, but one of the most common is identifying successful and potentially profitable companies that are relatively undervalued.

One reason to invest in AI stocks is the same way that you might be investing in technology stocks in general. There is no denying that the demand for artificial intelligence has exploded over the past several years. Investing in the companies that are driving the AI boom may yield returns. But investors should also be prepared for some volatility in this space, owing to the rapid pace of innovation and steep competition.

It’s notable that in August of 2025, the Securities and Exchange Commission (SEC) announced the formation of a new AI-focused task force, to enable the regulatory body to enhance its own efficiency and ability to regulate markets increasingly inclusive of AI technology.[1]

Top AI Stocks by Market Cap (2025)

Here is a look at some of the top AI stocks by market capitalization, as of October 2025, along with 1-year returns.

Company Ticker Market Cap 1-Year Return
Nvidia NVDA $4.3 trillion 55.50%
Microsoft MSFT $3.8 trillion 18.02%
Alphabet (Google) GOOGL $3.1 trillion 57.71%
Amazon AMZN $2.5 trillion 24.03%
Meta Platforms META $1.96 trillion 45.04%
Broadcom AVGO $1.6 trillion 113.61%
Palantir Technologies PLTR $419.8 billion 386.45%
AMD AMD $256.3 billion 6.49%
ServiceNow NOW $197 billion 6.44%
Snowflake SNOW $75.3 billion 100.50%

Source: Yahoo Finance, as of October 1, 2025.

Nvidia (NVDA)

•  Overview: Data centers, driverless cars, and generative AI applications are all powered by Nvidia’s GPUs and AI accelerators. Many people consider these to be the foundation of the AI hardware ecosystem.

•  Why it’s a top stock: The company has secured a dominant market position in training huge AI models due to the growing demand for its AI processors. It is positioned as a major facilitator of AI adoption in 2025 due to its robust revenue growth and alliances with cloud industry leaders.

•  Risks: Due to its high value, Nvidia has little margin for mistake, and its market share may be eroded by growing competition from AMD, Intel, and hyperscalers producing custom chips.

Microsoft (MSFT)

•  Overview: Microsoft is one of the largest companies in the world, and it’s now integrating AI into its Office, Azure, and GitHub Copilot software.

•  Why it’s a top stock: Microsoft has partnered with OpenAI to make its Azure computing platform into a central hub for generative AI. It is considered an AI leader due to its size and scale.

•  Risks: Microsoft has a history of attracting antitrust and regulatory scrutiny, which could affect returns. Owing to its size, it may be less nimble than competitors.

Alphabet (GOOGL)

•  Overview: Alphabet is the parent of Google, one of the leading companies for search, cloud services, and AI research. Its DeepMind research lab is an industry leader.

•  Why it’s a top stock: Google’s Gemini AI model is one of the more popular generative AI platforms. Due to its large data advantage and experience in AI, it has the potential to be a top AI stock.

•  Risks: Alphabet has faced regulatory and antitrust action from governments. Also, the cost of remaining competitive (e.g., talent acquisition, operations) could exert downward pressure on the company’s bottom line.

AMD (AMD)

•  Overview: AMD develops CPUs and GPUs used in gaming, PCs, and increasingly in AI data centers.

•  Why it’s a top stock: Its MI300 chips are designed to compete with Nvidia for a slice of the artificial intelligence market. A track record of innovation also suggests AMD is well-placed for solid future performance. In addition, a Q4 deal to sell billions in GPUs to OpenAI has moved AMD into Nvidia’s space.[2]

•  Risks: Nonetheless, Nvidia is an entrenched competitor in this market, making it risky to bet on AMD as the challenger in CPU and GPU development.

Broadcom (AVGO)

•  Overview: Broadcom is a semiconductor and infrastructure software company providing chips used in networking, broadband, and AI data centers.

•  Why it’s a top stock: Broadcom produces chips that support high-bandwidth connectivity, and its components are an essential part of industry infrastructure. Its strategic purchase of VMware provides additional income and profit. In addition, its Q3 revenue, and forecasts for the coming year, topped expectations.[3]

•  Risks: Currently, Broadcom is considered overvalued, and there has been some top level insider selling that may indicate a lack of confidence.

Get up to $1,000 in stock when you fund a new Active Invest account.*

Access stock trading, options, alternative investments, IRAs, and more. Get started in just a few minutes.

*Customer must fund their Active Invest account with at least $50 within 45 days of opening the account. Probability of customer receiving $1,000 is 0.026%. See full terms and conditions.

Palantir (PLTR)

•  Overview: Palantir provides big data analytics platforms, widely used by governments and enterprises to manage and analyze data.

•  Why it’s a top stock: Palantir focuses on using large language models for enterprise rather than those targeted to individual consumers. This allows for a profit base through government contracts and through working with large businesses.

•  Risks: Palantir has an outsized reliance on government contracts, which exposes it to political and budgetary risks. It’s also one of the most expensive stocks in the S&P 500, as of October 8, 2025, and analysts are questioning its valuation.

Amazon (AMZN)

•  Overview: In addition to dominating global e-commerce, Amazon also operates Amazon Web Services (AWS), a leader in cloud computing and AI infrastructure.

•  Why it’s a top stock: AWS offers AI tools and chips, which make it a key platform for developers and enterprises deploying AI. Amazon has also innovated in using AI for areas like in logistics, retail, and Alexa.

•  Risks: Because it is such a large company, it can be difficult to achieve the same percentage of growth as smaller companies.

Meta Platforms (META)

•   Overview: Meta operates Facebook, Instagram, WhatsApp, and Reality Labs, using AI for content recommendations, ads, and virtual reality.

•   Why it’s a top stock: It has open-sourced its Llama LLM model and is investing heavily in AI infrastructure. If it is able to continue its strong user growth and AI-driven monetization, it could pave the way for higher profits.

•   Risks: Meta has invested a huge amount in both AI and the metaverse. This could bring down profits if it is not able to capitalize on its large investment.

ServiceNow (NOW)

•   Overview: ServiceNow delivers cloud-based workflow automation solutions for enterprise operations, enhanced by AI. It’s also expanding into the CRM area.

•   Why it’s a top stock: ServiceNow uses generative AI in its platform to help its customers be more productive. Most of its customers are on a subscription model, which provides a baseline amount of revenue.

•   Risks: ServiceNow is considered one of the top providers in enterprise software solutions, but it’s dependent on IT budgets. Also, with part of its customer base in the federal government, the company could face headwinds there.

Snowflake (SNOW)

•   Overview: Snowflake provides cloud-native data warehousing and analytics to allow companies to process massive datasets.

•   Why it’s a top stock: Snowflake Data Cloud is increasingly using its AI model training and deployment to help drive enterprise adoption.

•   Risks: The stock’s current valuation is relatively expensive relative to company earnings, which could signal that its upcoming growth may not match previous returns.

AI Stocks to Watch

In addition to the top AI stocks mentioned above, there are a few other potential up-and-coming companies to keep in mind.

•   Astera Labs (ALAB) helps meet demand for high-speed connectivity in AI data centers.

•   Arista Networks (ANET) has become a critical supplier of networking gear that keeps massive AI clusters running smoothly.

•   SoundHound AI (SOUN) is carving out a niche in voice-driven AI.

Since these are smaller or emerging companies, they may offer returns but also come with increased risk and volatility.

How to Invest in AI Stocks

There are a couple of different ways that you might consider investing in AI stocks.

Direct Stock Purchases

One of the simplest ways to invest in AI stocks is to use a self-directed brokerage account to make direct stock purchases of companies that focus on artificial intelligence. This could include companies that make the GPU, XPU, and TPU chips that power AI data centers, as well as companies that are using generative AI to help grow their business, or other companies in the space.

Many companies that work with AI are public companies, which means that you can purchase shares of their stock with a brokerage account.

Recommended: Understanding ETFs

AI ETFs

An AI exchange-traded fund (ETF) focuses on investing in companies using artificial intelligence.

There are AI ETFs that are more general, investing in a combination of innovators and artificial intelligence providers, such as the Global X Artificial Intelligence & Technology ETF (AIQ).

There are also ETFs that take a more narrow focus, such as the Roundhill Generative AI & Technology ETF (CHAT), that focuses only on companies using generative AI.

Regularly putting money into an AI ETF can be a way to increase automated investing in your portfolio.

How to Evaluate AI Companies

If you’re interested in thematic investing such as investing primarily in AI companies, you’ll want to make sure that you can accurately evaluate these companies.

One way to evaluate a company is to look at its fundamentals. This includes its top-line revenue, growth prospects, profit margins, competitors in the space, and debt levels.

You might also compare its P/E ratio (calculated by dividing the current market price of its stock by its earnings per share (EPS) to the P/E ratios of similar companies. That can be an indicator as to whether the stock price is currently under- or over-valued.

Understanding a company’s fundamentals can help you assess its potential upside and risks, and whether it’s a good fit with your risk tolerance.

Recommended: Risk Tolerance Explained

Common Risks of Investing in AI Stocks

Some of the risks that come with investing in AI stocks are the same risks that come with investing in any stocks. One of the most common maxims in stock investing is that past results do not guarantee future performance. So even if you find an AI stock or ETF that has performed well, it may not be a good choice going forward.

Because many AI stocks are also emerging companies without a long track record, they may come with higher risks than some other companies.

One of the biggest risks of investing in AI stocks, though, is the rapidly evolving state of AI technology right now — with numerous competitors here and abroad, and an astounding pace of innovation.

Building an AI-Focused Portfolio

If you have done your research and decided that you want to build an AI-focused portfolio, you have a number of options to get started. By and large, the process of selecting AI stocks is similar to selecting any investment: It requires research and due diligence to find the right fit with your financial goals.

It may also be possible to choose a robo advisor that includes AI stocks. A robo advisor is a type of automated portfolio that can help investors select a portfolio that matches their goals and financial needs. These portfolios typically include a range of low-cost securities such as ETFs; it’s important to do your due diligence to verify the types of investments included.

Learn more: What Is a Robo-Advisor?

However you choose to proceed, you may also want to consult a financial professional, owing to the range of options and the potential risks involved.

The Takeaway

AI is being integrated into multiple facets of our society at a breakneck pace, with new companies and new products emerging every day. If you want to capture some of the potential growth that comes from this sector, consider dedicating a portion of your overall investment portfolio into AI stocks, bearing in mind the potential risk exposure.

Invest in what matters most to you with SoFi Active Invest. In a self-directed account provided by SoFi Securities, you can trade stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, options, and more — all while paying $0 commission on every trade. Other fees may apply. Whether you want to trade after-hours or manage your portfolio using real-time stock insights and analyst ratings, you can invest your way in SoFi's easy-to-use mobile app.


Invest with as little as $5 with a SoFi Active Investing account.

FAQ

What exactly are AI stocks?

The term “AI stocks” generally refers to stocks of companies that focus on areas like large language models (LLM), robotics, self-driving vehicles, or using AI to improve manufacturing processes. This means that there are many stocks that could be considered AI stocks, especially because AI technology is being integrated into many other sectors.

What are the main risks of investing in AI stocks?

The biggest risks of investing in AI stocks are that companies that focus on AI are often highly volatile, subject to competition and market disruptions. Unlike investing in AI ETFs, which include the stocks of many companies, investing in AI stocks ties your investment directly to the performance of a single company, which may increase risk exposure.

How can I identify the best AI companies for me to invest in?

There isn’t a single best AI company to invest in. Instead, the right AI companies to invest in will vary for every investor. That’s because each investor has a different risk tolerance and different things that are important to them. One way to identify AI companies to invest in is to look at the fundamentals of various AI companies, including revenue growth, profitability, and debt levels.

How much of my portfolio should be in AI stocks?

Deciding on your overall portfolio composition will depend on many individual factors, such as your risk tolerance and investment goals. AI stocks are generally thought to have a higher risk-reward ratio than other individual stocks, so you may want to keep the percentage of AI stocks in your portfolio low, unless you have a very high risk tolerance.

Should I buy individual AI stocks or an AI ETF?

Whether you should focus on AI stocks as compared to investing in an AI ETF depends on your overall investment goals and risk tolerance. You will generally have less volatility in an AI ETF, since your risk is spread out among many different stocks.

How do I stay updated on AI stock trends?

You can stay updated on AI stock trends in the same way that you might stay updated on trends for any company. You can follow news outlets, earnings releases, and industry reports. You can also follow analysts or set up alerts on companies you’re interested in through your brokerage app or another financial news service.

Recommended: How AI Investing Trends Are Shaping the Future

About the author

Dan Miller

Dan Miller

Dan Miller is a freelance writer who has spent over ten years covering developments in the finance space. His expertise extends to all things personal finance, including student loans, budgeting, credit cards, and mortgages. Read full bio.

Article Sources
  1. U.S. Securities and Exchange Commission. SEC Creates Task Force to Tap Artificial Intelligence for Enhanced Innovation and Efficiency Across the Agency.
  2. CNBC. Tech AMD’s deal with OpenAI gives Nvidia much-needed challenger in market it dominates.
  3. Morningstar. After Earnings, Is Broadcom Stock a Buy, a Sell, or Fairly Valued?.

Photo credit: iStock/Liubomyr Vorona

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

S&P 500 Index: The S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an investment product, but a measure of U.S. equity performance. Historical performance of the S&P 500 Index does not guarantee similar results in the future. The historical return of the S&P 500 Index shown does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns.
Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOIN-Q325-127

Read more
Nov
03
2025
A man gestures animatedly at a laptop while speaking to a woman.

How AI Investing Trends Are Shaping the Future

By | invest | Comments Off on How AI Investing Trends Are Shaping the Future

In recent years, artificial intelligence (AI) has had a dramatic impact on modern investing. AI tools and systems have begun to impact not only how institutional investors operate and make decisions, but also how many everyday individual investors monitor their portfolios, spot new opportunities, and make decisions. From AI-powered robo-advisors to machine learning platforms that adjust portfolios in real time, AI is increasingly embedded in the investment ecosystem.

What does the future of AI in finance hold? Analyzing AI investing trends offers insight into the opportunities — and challenges — that may lie ahead for both institutional and individual investors.

Key Points

•   AI investing uses algorithms and machine learning to analyze data, identify patterns, and predict potential trends.

•   AI systems process vast amounts of data faster and more objectively than humans.

•   Algorithms may be used to efficiently construct, monitor, and rebalance investment portfolios.

•   Robo-advisors are gaining popularity, especially among younger investors, due to low costs and automation.

•   Future opportunities include models that more deeply integrate AI tools and human advisors, but challenges like data accuracy and ethical governance persist.

The Rise of AI Investing

Artificial intelligence isn’t as new to finance as it might seem. The foundations of AI —- such as automation and algorithm-driven processes —- have quietly shaped the financial markets over the last several decades.

One of the earliest investment applications emerged in the 1980s with algorithmic trading, in which computers automatically executed trades based on certain market data. In the 1990s, finance shifted further towards data-driven AI, as researchers developed algorithms capable of recognizing patterns in datasets. This laid the groundwork for modern machine learning, which is when computer systems are able to learn and adapt without following explicit instructions.[1]

By 2011, deep learning — which uses neural networks to interpret complex data and tackle intricate problems — pushed AI further into finance. Investment firms began testing algorithmic trading systems powered by AI. In 2018, BlackRock established an AI lab to explore the use of machine learning, data science, and natural language processing (which uses machine learning to enable computers to understand and communicate with human language).[2]

Today, AI technologies are advanced enough for investment managers to create everything from AI-informed funds to fully automated, AI-directed funds. Here’s a look at some of the most common applications of AI in investing:

•   Algorithmic and high-frequency trading

•   Predictive analytics and market forecasting

•   Risk management and fraud detection

•   Portfolio optimization

•   AI-driven robo-advisors

As AI becomes more widespread in investing, it’s important to consider what changes may be on the horizon. Here are some of the top AI investing trends to watch in 2025 and beyond.

Mainstream Adoption of Robo-Advisors

Robo-advisors challenge the traditional advisory model by using algorithms rather than human insight to construct, monitor, and rebalance portfolios. While the number of investors who rely on robo-advisors to invest in stocks is still relatively small, research indicates that adoption may be growing, especially among younger investors.

Here’s how robo-advisor use compares across generations, according to a 2025 investment trends report from the data analytics firm YouGov:[3]

Percentage of Investors Who Use Robo-Advisors
Gen Z 14%
Millennials 20%
Gen X 14%
Baby Boomers 6%

According to Fortune Business Insights, the global robo-advisor market is projected to grow from $10.86 billion in 2025 to $69.32 billion by 2032.[4] This suggests that significantly more investors will seek low-cost, automated investment advice online in the coming years.

Learn more: What Is a Robo-Advisor? How Do They Work?

AI-Powered Stock Screening and Market Signals

AI stock screeners can do what the typical investor can’t: process vast amounts of data almost instantaneously to detect patterns and potential market signals.

Powered by machine learning and natural language processing, these tools analyze market data, financial reports, and even investor sentiment, allowing them to conduct a more comprehensive analysis of the market. AI stock screeners may spot potential opportunities to invest in based on both technical and fundamental analysis indicators, and make estimated assumptions about which way a stock may move next.

Of course, no tool can predict investing outcomes, just as no tool can guarantee profits or eliminate risk. An AI stock screener can be a useful co-pilot, however, and may help investors make more informed choices. As AI screeners continue to evolve and become more sophisticated, more investors may turn to these tools to try to identify potentially favorable stocks.

Recommended: Top AI Stocks to Invest In: 2025 Guide

Growth in Thematic and Tech-Driven Investing

Thematic investing refers to choosing investments based on big ideas or trends — such as clean energy, AI, robotics, ESG (environmental, social, and governance), or biotech — rather than traditional factors like sector or geography.

AI helps enable thematic investing by identifying which themes appear to be gaining momentum early. For example, AI tools can help monitor policy changes, patent filings, corporate R&D disclosures, and even scientific publications to see which technologies may be poised for growth. AI can also help model the possible economic impact of emerging industries, estimating growth trajectories, risk factors, and competition.

With all of these options, it’s important to remember that AI is not a perfect investing tool — there’s no such thing. AI’s information is only as useful as the data it processes. With AI’s ability to analyze and model complex data, however, investors may continue to turn to AI thematic investing in 2025 and beyond.

Personalized Portfolios Using Machine Learning

Customization may be a helpful benefit of AI-enabled investing. Rather than having fixed portfolios or only a few models (such as “conservative,” “balanced,” or “aggressive”), AI-powered platforms are increasingly able to tailor portfolios to an investor’s individual goals, risk tolerance, time horizon, preferences, and liquidity needs.

Robo-advisors are an example of this in action. When you join a robo-advisor platform, you’ll typically complete a questionnaire, which is designed to assess your risk tolerance, goals, and investing preferences. If you’re managing investments through an AI-powered robo-advisor, the platform’s algorithm uses machine learning to analyze your responses and make recommendations that are tailored to your situation.

Recommended: A Beginner’s Guide to the Stock Market

Real-Time Risk Monitoring and Portfolio Rebalancing

Markets move quickly —- news, geopolitics, supply chains, inflation, and regulatory decisions can all spark unexpected volatility in the market. AI tools are increasingly being used to monitor risk in real time and help rebalance portfolios more proactively.

AI can quickly analyze historical performance, market sentiment, and price movements to model potential risks, which may help investors stay ahead of sudden changes. Automated rebalancing, a feature of many robo-advisors, helps to keep portfolios aligned with an investor’s target allocation by recommending or executing trades as markets shift.

The AI investing market is expanding rapidly, with new tools and platforms emerging all the time. Below is an overview of the different kinds of AI-powered tools and platforms that are currently available to assist investors. (While SoFi offers robo investing, it does not currently offer members tax-loss harvesting services or AI-specific analysis tools.)

•   Robo-advisors: One way to access artificial intelligence in the investment sphere is through a robot advisor that incorporates AI. These tools leverage machine learning to help improve risk management, portfolio rebalancing, and tax-loss harvesting. One advantage is their relatively low cost and low minimum investment requirements.

•   AI-powered screening platforms: If you prefer active trading, AI stock screeners can help you with your investment decisions. Some screeners are stand-alone applications, while others may be incorporated into your brokerage account as a core feature.

•   Sentiment analysis tools: AI-powered sentiment analysis sites and tools analyze news and social media posts to gauge investor sentiment. These tools leverage natural language processing to go beyond classifying articles or posts as merely positive or negative, but considers context and nuance in communications. This allows them to help effectively monitor trends, “buzz,” or shifts in perception.

•   Thematic discovery engines: Many investment platforms enable thematic investing powered by AI. These engines are able to mine corporate communications (e.g., earnings reports, regulatory filings, and other public information) for common keywords supporting a theme. This may uncover a web of interconnected companies, allowing investors to consider interests beyond traditional market sectors or the well-known industry leaders.

Recommended: How to Invest Using AI Tools

How AI Is Reshaping Investor Behavior

Investors are becoming more receptive to AI in their financial lives. According to a March 2025 Ipsos/TD Bank survey, 43% of Americans are comfortable with a hybrid approach that combines AI with human financial advisors, while 44% are open to using AI to manage investments.[5]

AI’s appeal lies largely in its speed, cost-efficiency, and convenience. Many investors now rely on digital platforms and apps to manage portfolios and gather information. Globally, 77% of investors have at least a part of their portfolio on a digital platform or app, while nearly 75% source investment information through digital means, according to Amundi’s 2025 Digital Investment report.[6] These numbers are likely to climb as AI becomes more integrated into wealth management.

The Future of AI in Finance

As AI’s role in investing deepens, the coming years may bring opportunities but also challenges.

While AI has numerous benefits, there are also potential risks involved in using AI to make investment decisions. One ongoing concern is that the reliability of AI tools depends heavily on the accuracy of their data. Skewed or incorrect inputs or algorithmic bias can undermine recommendations and potentially put investors at risk. The lack of transparency about how AI models operate and how customer data is stored and used are also ongoing concerns.

Moving forward, success will likely come from balancing automated investing and human judgment, ensuring transparency, and managing risks responsibly. Here’s a look at how AI in investing may play out over the next several years:

•  Deeper integration and hybrid models: The most successful AI strategies will likely be human advisors and AI systems working together. In a hybrid approach, AI handles data processing and monitoring, while humans continue to bring judgment, ethics, and clients’ unique needs into investment decisions.

•  Transparency and ethical governance: Financial institutions that address bias and adopt transparent and fair AI practices may gain investor confidence and trust.

•  Shift to customer-facing applications: While much of the investment in AI has been concentrated on foundational systems, such as hardware and AI models, many institutions are now focusing more on AI-powered products and services to enhance the retail investor experience.

The Takeaway

AI investing trends aren’t a passing fad — they represent a fundamental shift in how many inventors (both institutions and individuals) approach investing. AI systems and tools are now widely used to help improve efficiency, lower costs, and potentially increase investment returns.

That said, AI is still best thought of as a supporting tool, not a replacement for human judgement. While it can help investors of all experience levels make more informed decisions, AI isn’t a magic wand. Understanding risk, knowing your goals, keeping an eye on fees, and being skeptical of overhyped promises remain essential.

As adoption of AI grows, investors who learn how to use this technology responsibly — balancing the benefits with the risks — may be better positioned to navigate markets and build long-term wealth.

Ready to start investing toward your future, but want some help? You might consider opening an automated investing account with SoFi. Whether you're interested in investments for your traditional brokerage or IRA account, you can access personalized, expert-curated recommendations and automatic monitoring, trading, and rebalancing. With a robo advisor from SoFi Wealth, you'll get a professionally managed portfolio aligned with your goals.


See why SoFi is this year’s top-ranked robo advisor.

FAQ

What is the biggest change AI brings to investing?

The biggest change AI brings to investing is speed and precision in decision-making. Traditional methods rely heavily on manual analysis, but AI can process vast amounts of financial data, news, and market trends in real time. This allows investors to spot potential opportunities or risks much faster than before. While no AI tool can predict outcomes or guarantee results, this technology helps make investing more data-driven, efficient, and accessible.

Will AI replace human financial advisors?

AI is unlikely to fully replace human financial advisors but may instead complement their roles. While AI excels at analyzing data, spotting trends, and automating tasks like portfolio rebalancing, it lacks the human qualities needed for personalized advice, empathy, and building trust. Advisors provide guidance that goes beyond numbers, such as understanding life goals, emotions, and unique circumstances. AI allows advisors to focus on relationship-building and strategic planning rather than routine calculations.

How does AI help with managing investment risk?

AI may help manage investment risk by continuously analyzing market conditions, company performance, and global events. AI may also help detect early warning signals, such as unusual trading patterns or shifts in economic indicators, in real time. AI also uses predictive models to stress-test portfolios against different scenarios, which may help identify potential downturns. That said, it’s important to remember that AI, nor any tool, can definitively predict how assets will perform.

How is AI impacting new investors?

AI can help make investing more accessible and less intimidating for beginners. By automating portfolio creation, rebalancing, and risk assessments, AI may also allow beginners to start investing with more confidence. Ultimately, AI reduces barriers to entry, potentially helping new investors learn more about their options and strategies.

What are the main benefits of AI in investing?

The main benefits of AI in investing include efficiency, accuracy, and accessibility. AI can process massive datasets quickly, providing insights that would take humans weeks or months to uncover. By reducing emotional bias and relying on data-driven analysis, AI may also improve accuracy, and potentially improve portfolio performance. For individuals, AI makes professional-level investing tools available at lower costs, often through robo-advisors or apps. It’s important to keep in mind, however, that no AI tool can predict outcomes or guarantee results.

About the author

Rebecca Lake

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

Article Sources
  1. Medium. AI in the 1980s and 1990s: The Decades That Changed Everything.
  2. Binance. Biggest Asset Manager Company Blackrock.
  3. YouGov. US investment trends report 2025.
  4. Fortune Business Insights. Robo Advisory Market Size, Share & Industry Analysis.
  5. Ipsos. Majority of Americans (89%) Are Comfortable Adapting to New Technology in Daily Life.
  6. Amundi. Retail investors go digital while confirming the key role of professional advice.

Photo credit: iStock/Don Wu

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

SOIN-Q325-118

Read more
Nov
03
2025
A person wearing glasses uses their phone while sitting at a table with a laptop and papers.

How to Invest Using AI Tools

By | invest | Comments Off on How to Invest Using AI Tools

From quickly analyzing vast data sets to powering automated investing to providing personalized recommendations, artificial intelligence (AI) is fundamentally changing the speed and accessibility of investing.

But using AI to invest also has its share of risks, as its complexity may sometimes be understated or glossed over by eager proponents. Weighing the advantages and disadvantages of this technology can help you decide if AI-guided investing makes sense for your financial plan.

Key Points

•   AI investing tools rely on algorithms and machine learning to provide information that may help investors personalize and diversify their portfolios.

•   There are multiple ways to use AI for stock investing, including via robo-advisors, stock screeners, and risk management tools.

•   One of the biggest risks of using AI to invest is accuracy; AI tools are only as reliable as the underlying data they base their analysis on.

•   Investors should be aware of the possibility of AI bias, which is when data output is biased as a result of skewed or unrepresentative data sets.

•   Balancing AI with help from an advisor may help investors benefit from extensive data analysis as well as a professional’s strategic and empathetic judgment.

What Is AI Investing?

AI investing tools and systems use algorithms and machine learning to analyze market data, identify opportunities, and complete trades. AI investing tools may do one of these things or all of them — what ties them together is the reliance on artificial intelligence to help inform investment decisions.

Robo-advisors and stock pickers are two examples of AI-powered investing tools. One is a form of passive investing, while the other is designed for active investors.

•  AI robo-advisors rely on algorithms, often in combination with portfolios built by specialists, to provide investment options based on an investor’s risk tolerance, time horizon, and goals. Investments are rebalanced automatically to maintain the investor’s preferred portfolio allocation. Robo investing may involve human input, but once an investment strategy is developed, AI generally automates portfolio management.

•  AI stock pickers use machine learning and natural language processing to analyze large data sets for specific trends. Investors then receive recommendations on stocks to buy or sell, based on the findings. AI stock pickers may merge technical and fundamental stock analysis to provide information in a fraction of the time of traditional research methods.

Using AI for stock trading means you can choose which approach to take, based on whether you prefer to be more hands-on or hands-off with your portfolio.

Deep dive: What Is a Robo Advisor?

How AI is Changing the Investment Landscape

AI’s integration into the investment landscape is happening on multiple levels, though there are some clear trends in AI investing to be aware of.

A growing number of financial advisors, financial planners, and wealth managers, for example, are utilizing automated investing tools to help develop financial plans and build client portfolios. At the individual investor level, AI tools may make it easier to identify market trends through pattern recognition technology. Some AI platforms even allow investors to create custom algorithms that recommend when to potentially buy or sell specific investments, though investors should always take any additional or personal information into account before making a trade.

AI investing has enormous possibilities, but it has limitations as well.

What AI Can Do

If you’re interested in learning how to invest using AI, it’s helpful to have a realistic view of its capabilities. AI tools are equipped to:

•  Analyze vast amounts of market data in much less time than it would take a human to analyze the same information.

•  Identify historical patterns and trends based on that analysis.

•  Offer investment recommendations based on your goals, risk tolerance, and age.

•  Help rebalance portfolios to maintain the desired asset allocation.

•  Monitor market conditions in real time.[1]

Speed aside, the above tasks are things a human financial advisor can help with. The difference is that using AI for investing is generally more affordable than a human advisor. That said, a human advisor can offer strategic and investment recommendations that are tailored to your own unique circumstances and goals, while also offering emotional support.

What AI Can’t Do

AI-guided investing is still relatively new, and there are places it can’t take investors — yet. For instance, AI investing tools cannot:

•  Employ emotional and contextual intelligence to inform investing recommendations

•  Help an investor navigate complex circumstances

•  Verify its own information is free of hallucinations and appropriate for an investor

•  Make stock predictions with 100% accuracy (as this is impossible)

•  Predict black swan events in the market

•  Decide on an appropriate investing strategy for an investor

One of the biggest flaws associated with using AI to invest is that the results you get are entirely dependent on the quality of the data being processed. If an AI investing tool has incomplete or incorrect data, that could skew results and lead to recommendations that don’t align with your investment goals.[2]

And of course, AI can’t talk you down when panic sets in over market volatility. A human advisor, on the other hand, can help you navigate periods of uncertainty and help you determine whether your portfolio is appropriate for your circumstances.

Benefits of Using AI for Investing

There are some potential upsides to AI-powered investing. Here’s what AI investing tools bring to the table.

•  Speed: AI’s superpower, if you will, is being able to digest large amounts of data at lightning speed. AI tools may analyze market data in seconds that might otherwise take you (or your advisor) hours or even days.

•  Scalability: Scalability refers to how easy it is for something to expand. In the context of investing, AI tools can help financial advisors serve a greater number of clients and do so more efficiently. Individual investors, meanwhile, may use AI to conduct broader stock analysis than they’d be able to do on their own.

•  Less emotional bias: AI tools are not clouded by human emotional and behavioral biases. Instead, they generate investment recommendations based on the data that’s available to them. Using AI to invest could help you maintain discipline when volatility sets in, though again, AI lacks the human touch you’d get with a financial advisor.

•  Cost efficiency: We’ve already touched on financial advisor fees. Overall, fixed-percentage fees average about 1% annually. AI investing tools can often help you put together a complete portfolio for a fraction of that cost. That allows you to hold on to more of your investment earnings.

•  A level of personalization: Using AI for stock investing doesn’t mean you have to follow a one-size-fits-all approach. While AI investing tools may not offer the same level of personalization as a financial planner, they rely on your input to guide you toward an investment plan that reflects your needs and goals.

AI Investing Risks and Considerations

AI is an imperfect technology, and no discussion of its benefits is complete without covering the potential risks. Lack of transparency, lack of human guidance, data privacy, and bias[3] are some of the chief concerns surrounding the use of AI for investing.

Lack of Transparency in AI Models

If you’re using AI for stock investing, it’s important to have insight into how a particular tool works. More specifically, you may want to know how that tool determines which stocks to recommend and why.

Some AI tools may be more transparent than others, however. A lack of transparency can make it difficult to gauge whether the investments being made on your behalf are the right ones for you.

Overreliance and Need for Human Oversight

Leaning too heavily on AI tools for investing (or anything else) can become a problem. For example, building an investment portfolio based solely on artificial intelligence may introduce its own set of risks. A research analysis of AI use in educational settings found a possible link between increased reliance on AI and diminishing cognitive abilities in the areas of critical thinking and decision-making.[4]

In other words, there’s the possibility that using AI to invest could cause you to develop blinders and screen out other helpful sources of information. Working with a human advisor or using AI tools that are guided by human oversight may help reduce the possibility of your financial plan becoming too reliant on algorithms.

Data Privacy and Protection

Cybersecurity is always a concern when managing financial accounts online. If you’re using an AI tool or platform for investment decisions, that tool should be a secure one.

When evaluating AI investing tools, consider:

•  What data is collected from you

•  How that data is stored and who has access to it

•  What measures the developer takes to identify and defend against potential data hacks (e.g., encryption)

•  Which third-party vendors may have access to your data

Transparency matters here as well. A reputable AI company should be completely transparent about how your data is collected and used, and what steps it takes to prevent breaches.

Platform Trustworthiness and Algorithmic Bias

Reputation matters when deciding which AI platform or tool to invest with. Reading user reviews and checking the investment company’s Trustpilot or Better Business Bureau ratings may offer insight into how reliable and trustworthy it is.

The potential for algorithmic bias is also something to be aware of. This can occur when an algorithm is trained on data that is biased and excludes key data points[5] that may better reflect market conditions. For example, a biased algorithm may recommend specific investments to you based on your age. That can be a problem if the underlying data is biased in a way that makes assumptions about people in your age group that do not reflect your unique financial situation.

6 Ways You Can Use AI to Invest

While AI investing is quickly evolving, AI is not entirely new to the investing world. Investment firms have been using machine learning and algorithms to analyze data and understand risk for a number of years, and so it’s possible and perhaps even likely that many investors are already benefiting in some way from AI.

However, if you’re ready to explore investing using AI, there are several ways to do it. We’ve already mentioned AI robo-advisors and stock pickers, but you may be interested in other routes that may help you build a diversified portfolio. Here are some beginner-friendly options if the AI landscape is unfamiliar territory for you.

1. Use a Robo-Advisor to Automate Your Portfolio

Robo-advisors use algorithms to select investments for you, based on your goals and risk tolerance. You typically complete a questionnaire, and the algorithm uses your responses to recommend a portfolio strategy.

Depending on the tool you use, the algorithm may automatically rebalance your portfolio which helps keep your asset allocation aligned with your goals. Some robo platforms may also offer limited access to a human financial advisor or include automated tax loss harvesting, which may reduce what you owe in capital gains tax. (Be aware that SoFi does not offer tax loss harvesting at this time.)

You’ll pay an advisory management fee for these services, which may be anywhere from 0.20% to 0.85% annually. Some robo-advisors may charge no fees for assets under a certain threshold, which can be a plus if you’re looking for a low-cost way to explore AI investing tools.

2. Screen Stocks Based on Predictive Analytics

AI stock screeners use machine learning to analyze stocks and make predictive forecasts about performance. These screeners rely on:

•  Fundamentals and financial data

•  Company earnings reports

•  Market sentiment

•  Historical patterns and trends

•  News and social media reports

These tools can perform real-time analysis to try to identify trading opportunities as they arise, though it’s also important to keep in mind that it’s impossible for any tool (or human) to predict future market performance.

Recommended: Top AI Stocks by Market Cap (2025)

3. Build a Diversified Portfolio With AI-Driven Risk Management

Risk management is an important component in any portfolio. Too much risk or too little exposure to risk can directly affect outcomes and your alignment with your overall goals. Diversification is a common tactic for lowering your exposure to risk in your portfolio.

AI investing tools may analyze your current asset allocation and offer recommendations on how to increase diversification across different asset classes, sectors, and geographies. Depending on the tool or tools you use, you may have access to:

•  Portfolio optimization strategies

•  Stress-testing and modeling

•  Scenario analysis

•  Real-time market monitoring

•  Tax optimization strategies

Using AI to invest can make diversification seem less daunting. Modeling and visualizations can help you understand potential outcomes before you move any assets around.

4. Get Personalized Investment Suggestions Based on Your Goals

Portfolio building is personal, and the advice or recommendations you receive should be tailored to your situation. While an AI-driven investing platform will likely not offer the same degree of personalization as a human advisor, AI investing platforms may offer investment suggestions (such as certain ETFs, sectors, or asset mixes) based on your personal information and goals. Recommendations are typically based on a mix of factors:

•  Age and time horizon

•  Financial goals

•  Risk tolerance

•  Risk capacity

If you’re unsure of the difference between those last two terms, risk tolerance is how much risk you’re comfortable taking. Risk capacity refers to how much risk you are able to take on without jeopardizing your investment goals.

AI investing tools can use your inputs in each of these areas as a guide to build your portfolio. Some models can monitor investor behavior and make recommendations to reflect shifting goals or risk tolerance.

5. Analyze News and Sentiment at Scale

Market sentiment refers to how investors feel about the market at any given time. Sentiment analysis is an important consideration when trading because of the connection between investor emotions and behavior.

AI investing tools can scan the latest news, social media posts, financial research, and other sources to analyze data about market sentiment, sometimes in seconds.

That can be invaluable if you’re an active trader. Market sentiment can turn at a moment’s notice. The more attuned you are to it, the better positioned you may be to determine your trading strategy. That said, AI is dependent on its data sources and it’s important to be aware that it may not always interpret market sentiment accurately.

6. Monitor and Adjust Your Investments Automatically

Tracking your portfolio can be time-consuming, and often a little nerve-wracking if there’s an uptick in volatility. AI tools can track performance and market conditions in real-time, so you don’t have to stay glued to your device.

These tools can go a step further and handle automatic portfolio rebalancing to help keep your asset allocation on target. You can also set up alerts so you’re notified when a particular investment or sector experiences significant pricing fluctuations. That allows you to adjust your portfolio as needed, without constant hands-on monitoring.

The Takeaway

Using AI to invest can save time and help you make more informed decisions about your portfolio. Awareness of AI’s risks, plus a comprehensive investment strategy, can help you find the right balance of relying on AI investing tools, working with human advisors, and potentially leveraging your own research as you build a plan that aligns with your goals.

Ready to start investing toward your future, but want some help? You might consider opening an automated investing account with SoFi. Whether you're interested in investments for your traditional brokerage or IRA account, you can access personalized, expert-curated recommendations and automatic monitoring, trading, and rebalancing. With a robo advisor from SoFi Wealth, you'll get a professionally managed portfolio aligned with your goals.


See why SoFi is this year’s top-ranked robo advisor.

FAQs

What’s the easiest way for me to start using AI for investing?

One of the easiest ways to start using AI to invest is to let a robo-advisor do the work of managing your portfolio for you. You can choose from custom portfolios that reflect your goals and risk tolerance. If you like, you can invest automatically with recurring contributions.

How does AI help me choose investments?

AI tools use machine learning and natural language processing to analyze data and identify patterns or trends in stock movements. These tools may combine data analysis with input from investors regarding their age, risk tolerance, and goals to develop personalized investment recommendations.

How can I be sure the AI’s recommendations are reliable?

Any recommendations you may get from an AI investing tool are only as reliable as the underlying data they analyze. Transparency matters, and that’s why any AI platform or tool you decide to use should clearly explain how it sources data and what safeguards it uses to help ensure that data is accurate and unbiased. It’s important to remember, however, that no investing tool or human can predict price movements or market outcomes with certainty.

Is my data safe with AI investing tools?

AI investing tools typically have built-in protections to keep your data safe, and FINRA has privacy rules that investment firms must follow independent of the technology they use. Again, look for transparency when comparing AI investment platforms and avoid companies that offer little to no explanation about how your personal data is stored or used.

Can AI predict the next stock market crash?

No investment tool, whether AI-powered or not, can predict the next stock market crash with 100% accuracy. AI investing tools perform analysis, similar to what a financial advisor does — but faster. Diversifying your portfolio and paying attention to market trends may offer some protection against the worst impacts of a market crash.

About the author

Rebecca Lake

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

Article Sources
  1. Investing.com. AI Stock Trading: How Artificial Intelligence Can Revolutionize Your Stock Picking.
  2. Data Ideology. AI Data Quality Matters—Bad Data Leads to AI Failure.
  3. CFA Institute. AI Bias by Design: What the Claude Prompt Leak Reveals for Investment Professionals.
  4. SpringerOpen. The effects of over-reliance on AI dialogue systems on students’ cognitive abilities: a systematic review.
  5. IBM. What is algorithmic bias?.

Photo credit: iStock/mapodile

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

SOIN-Q325-117

Read more
Nov
03
2025
In the Money (ITM) vs Out of the Money (OTM) Options

In the Money vs Out of the Money Options: Main Differences

By | Growing Wealth, invest, Investing | Comments Off on In the Money vs Out of the Money Options: Main Differences

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

In options trading, knowing the difference between being “in the money” (ITM) and “out of the money” (OTM) allows the holder of a contract to know whether they might realize a profit from their option. The terms refer to the relationship between the option contract’s strike price and the market value of the underlying asset.

“In the money” refers to options that may be profitable if exercised today, while “out of the money” refers to those that lack intrinsic value. In the rare case that the market price of an underlying security reaches the strike price of an option exactly at the time of expiry, this is considered an “at the money option.”

Key Points

•   Understanding the difference between “in the money” and “out of the money” options can help options traders gauge potential profitability.

•   Options classified as “in the money” have intrinsic value and may be profitable if exercised, while “out of the money” options lack intrinsic value and may expire worthless.

•   The potential for profit from options largely depends on the relationship between the strike price and the current market price of the underlying asset.

•   Options based on assets with higher volatility are often written “out of the money,” which can appeal to speculators due to their typically lower premiums and the potential for larger price swings.

•   Decisions to buy “in the money” or “out of the money” options should align with an investor’s goals, risk tolerance, and outlook for the underlying asset’s future performance.

What Does “In the Money” Mean?

In the money (ITM) describes a contract that may result in a profit if its owner were to choose to exercise the option today. If this is the case, the option is said to have intrinsic value.

A call option would be in the money if the strike price is lower than the current market price of the underlying security. An investor holding such a contract could exercise the option to buy the security at a discount and potentially sell it for a profit.

Put options, which are a way to speculate on a decline of a stock (known as shorting a stock), would be in the money if the strike price is higher than the current market price of the underlying security. A contract of this nature allows the holder to sell the security at a higher price than it currently trades for and potentially profit from the difference.

In either case, an in the money contract has intrinsic value, so the options trader may choose to exercise the option to profit from it, assuming the gains exceed the premiums paid to purchase the contract.

Example of In the Money

For example, say an options trader owns a call option with a strike price of $15 on a stock currently trading at $17 per share. This option would be in the money because its owner could exercise the option to realize a profit. The contract gives the holder the right to buy 100 shares of the stock at $15, even though the market price is currently $17.

The contract holder could take shares acquired through the contract for a total of $1,500 and potentially sell them for $1,700, hypothetically realizing a profit of $200 minus the premium paid for the contract and any associated trading fees or commissions.

While call options give the holder the right to buy a security, put options give holders the right to sell. For example, say an investor owns a put option with a strike price of $10 on a stock that is trading at $8 per share. This would be an in the money option. The holder could sell 100 shares of stock at a price of $10 for a total of $1,000, even though those shares are only worth $800 shares on the market. The contract holder would then realize that difference of $200 as profit, minus the premium and any fees.

What Does “Out of the Money” Mean?

Out of the money (OTM) is the opposite of being in the money. OTM contracts do not have intrinsic value. If an option is out of the money at the time of expiration, the contract expires worthless. Options are out of the money when the relation of their strike prices to the current market price of their securities is the opposite of in the money options: they have no intrinsic value but may still carry time value before expiration.

For calls, an option with a strike price higher than the current price of the underlying security would be out of the money. Exercising such an option through a brokerage (or online brokerage) would result in an investor buying a security for a price higher than its current market value.

For puts, an option with a strike price lower than the current price of its security would be out of the money. Exercising such an option would cause an investor to sell a security at a price lower than its current market value.

In either case, the contracts are out of the money because they don’t have intrinsic value – anyone exercising those contracts could incur a loss.

Example of Out of the Money

Say an investor buys a call option with a strike price of $15 on a stock currently trading at $13. This option would be out of the money. An investor might buy an option like this in the hopes that the stock may rise above the strike price before expiration, in which case a profit may be realized.

Another example would be an investor buying a put option with a strike price of $7 on a stock currently trading at $10. This would also be an out of the money option. An investor might buy this kind of option with the belief that the stock may fall below the strike price before expiration.

What’s the Difference Between In the Money and Out of the Money?

The premium of an options contract involves two different factors: intrinsic value and extrinsic value. Options that have intrinsic value at the time they are written have a strike price that is favorable relative to the current market price. In other words, such options are already in the money when written.

But not all options are written ITM. Those without intrinsic value rely instead on their extrinsic value. This value comes from speculative bets that investors make over a period of time. For this reason, options contracts based on assets with higher volatility are often written out of the money, as investors anticipate there may be bigger price swings. Lower options premiums could make these contracts appealing, despite possible lower probabilities of profit. Conversely, assets considered to be less volatile often have their options written in the money.

Options written out of the money may appeal to speculators because their contracts may come with lower premiums and offer a high potential payoff relative to cost, despite a lower chance of expiring in the money.

Recommended: Popular Options Trading Terminology to Know

Should I Buy ITM or OTM Options?

The answer to this question depends on an investor’s goals and risk tolerance. Options that are further out of the money may offer higher potential rewards but can come with greater risk, uncertainty, and volatility. Whether an option is in or out of the money (and the extent that it’s out of the money), can impact the premium for that option, as can the amount of time before expiry and its level of implied volatility.

Whether to buy ITM or OTM options also depends on how confident an investor feels about the future of the underlying asset. If a trader believes that a particular stock may trade at a much higher price three months from now, then they might not hesitate to buy a call option with a very high strike price, which would be both deeply out of the money and likely lower cost.

Conversely, if an investor thinks a stock may decline in value, they might buy a put option with a very low strike price, which would also make the option out of the money and lower cost.

Beginning options traders and those with lower risk tolerance may prefer buying options that are only somewhat out of the money or those that are in the money. These options often have lower premiums than in-the-money contracts, and cost more than deeply out-of-the-money options, striking a balance between affordability and probability. There are also generally greater odds that the contract might end up in the money before expiration, as it requires a less dramatic move to make that happen.

Investors can also choose to combine multiple options legs into a spread strategy that attempts to take advantage of both possibilities.

Recommended: 10 Important Options Trading Strategies

Test your understanding of what you just read.

The Takeaway

In options trading, “in the money” refers to options that offer profit potential if exercised immediately (having extrinsic value), while “out of the money” refers to those that don’t (lacking intrinsic value). Options contracts don’t necessarily have to be exercised for a trader to realize a profit from them. Sometimes investors buy out-of-the-money contracts with the intent of selling them on the open market for a profit if they move into the money before expiration. Though, of course, they risk losing the premium paid if the option remains out of the money and expires worthless.

In either case, it’s important to consider if an option is in the money or out of the money when buying or writing options contracts, as well as when deciding when to execute them. Options trading is an advanced investing strategy, and investors may benefit from understanding the risks before participating or consulting a financial professional for guidance.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

Explore SoFi’s user-friendly options trading platform.

Frequently Asked Questions

What is the difference between in the money and out of the money?

ITM options have intrinsic value because the strike price is favorable relative to the market price. OTM options have no intrinsic value and would not be profitable if exercised immediately. ITM options generally cost more, while OTM options tend to have lower premiums and rely on the price of the underlying asset moving in a favorable direction before expiration.

What is the difference between ITM and OTM options?

ITM options can be exercised at a price that’s better than the current market value, giving them intrinsic value. OTM options have strike prices that are not favorable relative to the market price and therefore have no intrinsic value. ITM options are more expensive but carry a higher probability of expiring with value, while OTM options are cheaper but more speculative.

What is the difference between an out-of-the-money and in-the-money put?

An ITM put has a strike price above the current market price of the underlying asset, which gives it intrinsic value. An OTM put has a strike price below the current market price, so it cannot currently be exercised for a profit. The difference lies in whether the put option would generate value if exercised immediately.

How can you tell if an option is in or out of the money?

Check the relationship between the option’s strike price and the current market price of the underlying asset. A call is in the money when the strike price is below the market price; it’s out of the money when the strike is above. For puts, it’s the opposite: the option is in the money when the strike is above the market price and out of the money when it’s below.

Photo credit: iStock/damircudic

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

SOIN-Q325-031

Read more
Nov
03
2025
What Are Underlying Assets? Types & Examples

What are Underlying Assets?

By | Growing Wealth, invest, Investing | Comments Off on What are Underlying Assets?

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

Underlying assets are the financial instruments (stocks, bonds, and commodities) that help determine the value of derivatives (options, futures, and swaps). These assets serve as the foundation for many trading strategies, influencing how derivatives contracts are priced and how risk is managed in the market.

Here, we look at the role of underlying assets in derivatives trading, and outline the five of the most common types used by investors.

Key Points

•   Underlying assets are the securities derivatives are based on, such as stocks, bonds, and commodities.

•   Investors may trade derivatives to speculate and attempt to profit from the future price movements of underlying assets, or to hedge against risk.

•   Derivatives prices are based on the price of the underlying asset, as well as potentially other factors, depending on the type of derivative.

•   Derivatives carry high risk and are complex, often requiring advanced trading knowledge.

•   These financial instruments may be used by investment firms, hedge funds, institutional investors, and retail investors.

What Is an Underlying Asset?

An underlying asset is a financial instrument, like a stock, bond, or commodity, that helps determine the value of a related derivative contract. Underlying assets can be individual securities (like stocks or bonds) or groups of securities (like in an index fund).

A derivative is a financial contract between two or more parties based on the current or future value of an underlying asset. Derivatives can take many forms, involving trading in widely used markets like futures, equity options, swaps, and warrants, among others.

These contracts can involve significant risk as investors speculate on the future price movements of an underlying asset. An investor may profit if the price of the underlying asset moves as they anticipated, but they could potentially face steep losses if the price moves in an adverse direction. Derivatives are also often used to hedge against potential losses in other investments.

How Underlying Assets Work

To illustrate how underlying assets work in the derivatives market, consider options trading as an example.

An option is a financial derivative that gives the contract holder the right, but not the obligation, to buy or sell an underlying security by or at a specific time and at a specific price. When an option is exercised by the contract holder, that means the holder has exercised the right to buy or sell an underlying asset.

Options come in two specific categories: puts and calls.

•   Put options allow the options owner to sell an underlying asset (such as a stock or commodity) at a certain price and on or by a certain date (known as the expiration date).

•   Call options enable the owner to buy an underlying asset (like a stock or a commodity) at a certain price and on or by a certain date.

The underlying asset first comes into play when that options contract is initiated.

Example of an Underlying Asset in Play

Suppose an investor believes the price of a company’s stock is going to rise. The stock is currently trading at $275 per share, and so they opt to purchase a call option with a strike price of $285. The contract is struck on September 1 and the options contract expiration date is November 30.

Now that the contract is up and running, the performance of the underlying asset (the stock) can determine whether the option becomes profitable or expires worthless.

In this scenario, the options owner now has the “option” (hence the name) to buy 100 shares of the stock at $285 per share on or before November 30. If the underlying stock, which is now trading at $275, moves above the $285 strike price, the options owner can exercise the contract and potentially profit from the difference between the strike price and the market price.

If, for example, the stock slides to $290 per share in the options contract timeframe, the call options owner can exercise the purchase of the stock at $285 per share, $5 below its current value of the stock (i.e., the underlying asset). With each contract typically representing 100 shares of stock, the profits can add up on the call option investment.

If, on the other hand, the stock remains below the $285 per share level, and the November 30 deadline has come and gone, the options owner would not exercise the contract, since the stock is now worth less than the $285 strike price. That’s also the price the options owner has to pay for the stock by the expiration date.

Keep in mind, too, that options buyers must also take into account the amount they spent to purchase the options contract, since this would detract from their potential profits. If for example, the premium for a contract was $1 per share, or $100 total, they would need the price of the underlying asset to rise above $286 (the breakeven point) to profit.

This scenario represents the importance of the underlying asset. The derivatives investment depends entirely on the performance of the underlying asset, with abundant risk for derivative speculators who’ve taken positions on the underlying asset moving in a certain direction over a certain period of time.

5 Different Types of Underlying Assets

Underlying assets come in myriad forms in the derivatives trading market, with certain assets being used more frequently due to their liquidity and price volatility.

Here’s a snapshot.

1. Stocks

One of the most widely used underlying assets is stocks, which is only natural given the pervasiveness of stocks in the investment world.

Derivatives traders rely on equities as benchmark assets when making market moves. Since stocks are so widely traded, it gives derivatives investors more options to speculate, hedge, and generally leverage stocks as an underlying asset.

2. Bonds and Fixed Income Instruments

Bonds, typified by Treasury, municipal, and corporate bonds, among others, are also used as derivative instruments. Since bond prices do fluctuate based on general economic and market conditions, derivative investors may try to leverage bonds as an underlying asset as both bond interest rates and prices fluctuate.

3. Index Funds

Derivative traders also use funds as underlying assets, especially exchange-traded funds (ETFs), which are widely traded in short-term (or intra-day) trading sessions. Besides being highly liquid and fairly easy to trade, exchange-traded funds are also tradeable on major global exchanges at any point during the trading day.

That’s not the case with mutual funds, which can only be traded after the day’s trading session comes to a close. The distinction is important to derivative traders, who have more opportunities for market movement with ETFs than they might with mutual funds.

ETFs also cover a wide variety of investment market sectors, such as stocks, bonds, commodities, international and emerging markets, and business sector funds (such as manufacturing, health care, and finance). That availability gives derivatives investors even more flexibility, which is a characteristic investors typically seek with underlying assets.

4. Currencies

Global currencies like the dollar or yen, among many others, are also frequently used by derivative investors as underlying assets. A primary reason is the typically fast-moving foreign currency (FX) market, where prices can change rapidly based on geopolitical, economic, and market conditions.

Currencies usually trade fast and often, which may make for a volatile market — and derivative investors tend to steer cash toward underlying assets that demonstrate volatility, as quick market movements may create short-term profit potential. Given that they move so quickly, currencies can also move in the wrong direction quickly, which is why some financial professionals caution that currency markets may be too volatile for most individual investors.

5. Commodities

Common global commodities like gold, silver, platinum, and oil and gas can also serve as the basis for derivatives contracts traded by investors.

Historically, commodities have been one of the most volatile and fast-moving investment markets. Like currencies, commodities are often highly desirable for derivative traders, but high volatility may lead to significant investment losses in the derivatives market if the investor lacks the experience and knowledge required to trade against underlying assets.

The Takeaway

Underlying assets are the fundamental financial instruments used to create derivatives contracts and strategies. Derivatives, such as options, futures, and swaps, can come with high risk — and trading against those assets requires a comprehensive knowledge of trading, position sizing, leverage, hedging, and speculation.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

Explore SoFi’s user-friendly options trading platform.

FAQ

What are underlying assets?

Underlying assets are the foundation of derivatives contracts. They influence how a derivatives contract is priced and serve as the basis of a derivative buyer or seller’s trading strategy. Broadly, investors trade derivatives to try to profit from the future price movements of underlying assets, or to hedge against risk with other assets they own.

What are different types of underlying assets?

The different types of underlying assets may include stocks, bonds, index funds (especially ETFs), global currencies, and commodities like gold and oil. These assets are generally chosen for their liquidity, volatility, and their role as the foundation for various derivatives trading strategies.

Are gold and silver considered underlying assets?

Yes, gold, silver, and other precious metals may serve as underlying assets in derivatives contracts. Precious metals are considered commodities, and derivatives are frequently based on these and other types of commodities, such as oil, gas, and agricultural products. Due to their historical volatility, commodities like gold and silver are often desirable for derivative traders, though these trades entail significant risk.

Photo credit: iStock/MixMedia

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.

Mutual Funds (MFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOIN-Q325-032

Read more
Close modal

See what SoFi can do for you and your finances.

Select a product below and get your rate in just minutes.

Student Loan
Refinancing

Personal
Loans

Online
Investments

Other

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2023 was around $33K. Information current as of 2/26/24. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.

✝ To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

©2026 Social Finance, LLC All rights reserved.
TLS 1.2 Encrypted
Equal Housing Lender