Investment Opportunities in AI
Everyone is discussing ChatGPT and artificial intelligence (AI). But this is no passing fad. Artificial intelligence will always be with us now. Moreover, its presence in our lives will only increase, whether we want it or not, and will transform how we live in the years and decades to come. But with enormous changes come huge opportunities. What is the best way to invest in this transformational technology?
Artificial intelligence (AI) is computer systems and algorithms that help us recognize speech, text, plan, manage and make decisions. In general, to do something that requires abilities similar to human intelligence, but transferred to a computer program.
AI is already being used in many areas: in finance for market forecasting, risk analysis and portfolio management, in medicine for image analysis and disease diagnosis, in the automotive industry in the form of unmanned vehicles, in trade for inventory management and logistics. AI can manage production, monitor the quality of products in factories, create training programs and test the knowledge of students in schools and universities, analyze the behavior of buyers and customers for marketing. And much much more. The scope of AI is limited only by technical capabilities, which are constantly growing.
Accordingly, there are more and more companies working in the field of creating AI-based applications and programs, and the market is projected to grow to $1.6trn by 2030. So which sectors offer the best investment opportunities if you want to profit from the growth of artificial intelligence?
The sectors related to artificial intelligence can be divided into several categories: equipment manufacturers (chips, processors, etc.), AI developers directly and companies using other people's AI-based developments in their products.
The appearance of ChatGPT and its peers and the resulting interest in AI has created huge additional potential for the growth of semiconductor manufacturers like TSM, because artificial intelligence requires significant computing power, which means top-end equipment that simply cannot be created without semiconductors.
In addition, there is a global trend towards semiconductor manufacturing increasingly being onshored in key geographies given concerns about supply chain dynamics following the recent pandemic and heightened sensitivities about the importance of semiconductors to national security in leading economies.
Like semiconductors, companies like NVIDIA which make high-performance chips and hardware are not directly involved in the development of AI, but power its growth. They too have been impacted by recent supply chain disruption which has created global shortages of key components, and they too will profit from AI-driven increased demand.
Both sectors, however, can be negatively impacted by on-going trade disputes. A good example of this was the effect of the US-China trade wars on Micron Technologies. In April of this year, the company got entangled in the on-going dispute between the United States and China when China announced a large-scale inspection of Micron on the basis of alleged threats to national security. This could result in the company being closed out of one of its main markets.
In terms of AI developers directly, the company which created ChatGPT, OpenAI, is already the clear market leader and has the backing of Microsoft. Microsoft plans allocate about $10bn more for the development of the company which created ChatGPT, OpenAI, in addition to its initial investment. Most of the deal will not be financial - Microsoft will provide the capacity of Azure, its cloud platform for computing, data storage and machine learning. This will allow Microsoft to significantly expand its cloud business, and OpenAI will be able to implement its model into existing Microsoft products plus release joint new ones.
ChatGPT’s explosion on the scene has left competitors floundering. A vivid example of this was Alphabet, better known as Google. The firm bungled its launch of Bard AI, a competitor to ChatGPT, in March of this year. Analysts were unimpressed by the product which was perceived to be inferior to ChatGPT.
And then there are companies using AI-based developments in their products. This is an extremely exciting sector because there is almost no limit as to how the new technology will be deployed. There is already analysis which claims that AI doctors, for example, produce better results than their human counterparts in terms of analysing illness and prescribing medicine.
The opportunities are so compelling that there are already several specialist AI funds focusing exclusively on the space. Global X Robotics & Artificial Intelligence focuses on companies developing and manufacturing robotics, autonomous vehicles and equipment, as well as solutions in the field of artificial intelligence and machine learning. iShares Robotics and Artificial Intelligence Multisector invests in companies engaged in the development, production and application of robotics and artificial intelligence. ARK Autonomous Technology & Robotics focuses on companies developing and producing technologies related to autonomous vehicles, energy, robotics and materials, as well as artificial intelligence and machine learning.
Finally, although it may seem as though AI has come from nowhere, in reality recent developments were the product of decades of research. The technology requires a huge amount of time and effort to develop, test and implement. We may still be 3-5 years away from a real breakthrough in the space. That means that a long-term view is critical.
Anastasia Tarasova is Founder at Maerli Capital
The views expressed in this article are not necessarily those of AlphaWeek or its publisher, The Sortino Group
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