AI (Artificial Intelligence) has become an investment theme for several reasons, driven by its potential to revolutionize industries, create efficiencies, and unlock new opportunities and re-order the global world order. AI is the future , not only for any country or company but for all humankind. AI comes big opportunities but also serious threats that are difficult to predict or risk manage.
AI is taking centre stage in global geopolitics and amid the clash of systems and civilizations of America and China. Despite this and according to Stanford university research, For all their strategic tensions, China and the United States team up an astonishing amount on research in artificial intelligence. U.S.-China collaborations on AI research have quintupled since 2010 and totalled 9,660 research papers in 2021.
In the investment world, AI is on fire. Since the introduction of OpenAI's ChatGPT last autumn, the technology's transformative potential has enthralled global investors, who've sent AI-oriented investment funds soaring this year as they also scrutinize which individual companies might benefit most from the technology. The AI sector is booming. Everywhere you look, there are new developments, new concerns and new products and services cantered around it.
Tech was the worst performing sector of the US stock market in 2022, this year and in a true reversion to mean Tech became the best performing sector of the largest market in the world so far this year in 2023. Single stock leadership so far this year is focused on AI as a theme. The AI sector is booming. Everywhere you look, there are new developments, new concerns and new products and services cantered around it.
As of today, Nvidia and meta-Facebook are the best performing single stocks in the US market. Facebook which revolutionized and monetized digital marketing is said to focus not only on the metaverse but also increasingly on AI.
Microsoft-backed OpenAI's ChatGPT surged to become the fastest-growing consumer application in history after its Nov. 30 debut, triggering an arms race among tech giants to release products using so-called generative AI.
There are many ways to invest in an industry or market sector, and AI appears to be fast becoming an important disruptor technology. Great profits can be obtained by correctly identifying any disruptor trends and investing in new companies, Microsoft IPO in 1986 or Google IPO in 2004.
AI companies can be defined as those that develop, facilitate or use AI solutions, such as deep/machine learning, natural language processing, image and speech recognition. Companies exposed to data collection/privacy and content moderation (media, software & services) could be first to see costs mount alongside a call for risk mitigation.
The iShares Robotics and Artificial Intelligence Multisector ETF (IRBO) and Global X Robotics & Artificial Intelligence ETF (BOTZ) iShares Exponential Technologies ETF (XT) and WisdomTree U.S. AI Enhanced Value Fund, Defiance Machine Learning & Quantum Computing ETF (QTUM) are United States listed ETFs that could provide easy “route to market” to AI as an investment theme.
Suitability & appropriateness are important for any portfolio position when considering portfolio construction of globally well diversified investment & retirement portfolios. Even if AI enabled security selection should always been approached as part of holistic portfolio construction.
Some clients and investors will want to invest directly in companies that develop AI, while others may choose to invest in those companies that stand to benefit the most from its wider adoption & applications.
Cybersecurity may be overlooked as an investment theme as business model risks and opportunities associated with artificial intelligence emerge. As AI spending, development and use accelerates, equities exposed to the theme could see mounting costs from such things as regulation risks and tech-security investment.
Regulations across jurisdictions and company security tools are evolving fast, but with AI getting quickly and increasingly entrenched and each adoption potentially expanding applications, offense is likely building faster than defence.
Companies and industries who can implement Generative AI to create shareholder values could be a big part of sector rotation in the stock market not only in the U.S but globally.
The Nasdaq has led USA equity indices so far this year as the first focus of the AI revolution was on U.S. tech mega caps like google or Microsoft that could most easily monetize AI.
Broad based impact of companies that can harness AI will be felt over the months and years ahead.
Any company that could integrate generative AI into their current business model might get re-rated by the global capital market.
Market growth and demand: The AI market has been experiencing rapid growth as businesses recognize the value of AI-driven solutions. As the demand for AI technologies and services increases, there are numerous investment opportunities for companies developing AI applications and tools.
Efficiency and cost-saving potential: AI can streamline processes, automate tasks, and optimize operations, leading to increased efficiency and cost savings for businesses. Investors are attracted to companies that can offer solutions to enhance productivity and reduce operational expenses.
Data-driven decision-making: AI's ability to analyse vast amounts of data and generate actionable insights has immense appeal to businesses across sectors. Companies with AI-driven analytics and data processing capabilities are attractive investment targets.
Advancements in technology: Continuous advancements in AI technologies, such as machine learning, natural language processing, computer vision, and robotics, are driving innovation and opening up new investment opportunities.
In the old days during US earnings season US banks stocks were seen as a barometer for the outlook & health of the economy and stock markets, increasingly it is semiconductors and companies working with AI.
Overall, AI's potential to drive transformative changes across industries, combined with strong market growth and continuous technological advancements, makes it an appealing investment theme for individuals, venture capitalists, and institutional investors alike. However, it's crucial to be aware that AI investment carries risks, including ethical considerations, technological challenges, and market uncertainties. As with any investment, careful research and due diligence are essential.
When using AI or investing in AI it is important to recall that with great power comes great responsibility.
Karl Marx opined, “workers of the world unite”. Capital owners might want to focus on how generative AI can create wealth and value beyond the stock market & investment portfolios.
Even a little but wise investment in AI in retirement & long-term investment portfolios could create great riches and a comfortable retirement in the new world of work of man & machine.
Rainer Michael Preiss is Partner & Portfolio Strategist at Das Family Office in Singapore.
