Artificial Intelligence – The Next Revolution and Investment Direction

     The rapid pace of innovation in artificial intelligence (AI) has brought to life many events that were previously considered fiction. As AI continues to disrupt the way we live and work, how can people invest in this cutting-edge technology that is rapidly changing society?

We created this post to help you better understand what artificial intelligence is and how we can use it to our benefit. We have also identified several popular investments in this fast-growing industry.

What Artificial Intelligence Represents

Artificial intelligence attempts to reproduce human intelligence in a computer with extremely high speed and precision. Companies such as Microsoft (MSFT) and Google (GOOGL) use this technology to program machines so they can solve problems, answer questions, and perform tasks that until now have been carried out by people.

As technologies advance, artificial intelligence becomes increasingly powerful, and its use covers all industries and sectors of the capital market.

Artificial Intelligence in Everyday Life

Organizations increasingly use the power of artificial intelligence to make critical business decisions, such as prioritizing medical assistance in emergencies, improving hiring practices, and determining a person's eligibility for credit, housing, and other essential services. 

The transportation industry is undergoing a massive transformation around autonomous vehicles.

Also, the well-known problem for Chisinau residents, the situation with suffocating traffic jams, could be solved, and traffic streamlined with the help of an artificial-intelligence-based traffic light control system.

The banking industry uses artificial intelligence to improve decision-making in high-speed trading, to automate risk management, or even to reduce costs through the use of humanoid robots in branches.

There are many debates about how AI will affect the labor market. As people become increasingly dependent on machines, so does employees' need to improve and learn new skills. The World Economic Forum estimates that by 2030, the technological revolution could affect more than 1 billion employees, representing about one third of jobs worldwide.

According to a 2015 survey conducted by Oxford and Yale universities of more than 350 artificial intelligence researchers, there is a 50% chance that machines could outperform humans in all tasks by 2060. And some technology visionaries, such as Tesla CEO Elon Musk, believe this could happen much sooner.

How to Profit with Artificial Intelligence

• Integrate AI into company processes to increase the effectiveness of our business.
• Develop a business in the AI field to sell these services/products.
• Invest in the most promising companies that develop AI services and products, to generate profit based on price growth on stock exchanges.

The last option is probably the simplest and most available to the general public, so we will focus on this direction below.

The Most Promising Financial Assets for Investing in Artificial Intelligence

The most promising companies that use, invest in, and develop AI-based services and products.

• Microsoft (MSFT) is one of the largest companies in the world, valued at 2.4 trillion dollars, and has invested 13 billion dollars in artificial intelligence initiatives, including an initial 1 billion dollar investment in OpenAI, whose ChatGPT is now one of the most recognized names in artificial intelligence. Microsoft has integrated AI into many of its systems, including the Bing search engine, Microsoft 360, sales and marketing tools, X-Box, and GitHub coding tools.
• Amazon.com (AMZN) uses artificial intelligence in its Alexa system and also offers machine learning (ML) tools. Amazon Web Services (AWS), Amazon's cloud computing division, provides artificial intelligence infrastructure that allows clients to analyze data and incorporate artificial intelligence into existing systems. AWS has more than 100,000 clients who can use artificial intelligence and machine learning to personalize recommendations, improve safety and security, understand their business, and improve customer engagement.

• Meta Platforms (META) has invested heavily in artificial intelligence. It uses AI Large Language Module (LLM) to help improve search results and predict the content its users will want to see. Meta has also developed its own silicon chip for artificial intelligence processing applications and created a next-generation data center.

• Alphabet (GOOG) is one of the top five artificial intelligence stocks, according to hedge funds that have literally revolutionized the adoption and uptake of the technology. Alphabet offers various products and services, including Google Maps, Google Play Store, Cloud, and more. Its investments in artificial intelligence are one of its main strategies for the future. According to CNBC, Alphabet signed a contract with Scale AI, a 7.3 billion dollar startup, to test artificial intelligence tools.

• NVIDIA (NVDA) is a leader in artificial intelligence and has a very strong market position thanks to its generative artificial intelligence, which describes the algorithms used to create new content in different output forms, including audio, computer code, images, text, simulation, and video. NVIDIA has created computer chips, hardware, software, and development tools to build complex artificial intelligence systems. NVIDIA uses thousands of graphics processing units (GPU) to power large artificial intelligence systems, and the company currently holds 88% share of the GPU market.

• Tesla (TSLA) is one of the best-known companies in the field of artificial intelligence, and that is easy to understand. The company uses artificial intelligence to automate driving, which requires constant data processing to identify other cars, road conditions, traffic lights, and pedestrians.

• C3.ai (AI). As the name suggests, this company is purely an artificial intelligence company, with its entire business dedicated to implementing AI solutions for its clients. A quick look at some of C3.ai's clients shows the scale of AI's potential impact on the economy: oil and gas giant Shell, mining company Koch Minerals, packaging supplier Ball, and the U.S. Department of State. They use C3.ai services to improve reliability, detect fraud, monitor computer networks, optimize power grids, and manage energy consumption. The company's shares have risen by more than 250% year to date, although the long-term chart offers a lesson in caution, as the share price is 70% below its 2020 all-time high.

• Taiwan Semiconductor Manufacturing (TSM) is the world's largest chip manufacturer and another top competitor in artificial intelligence chip production. As AI grows, the need for reliable computing chips will grow with it.

• In addition to Siri, which uses artificial intelligence to interact with customers, Apple (APPL) will continue to offer some artificial intelligence services on its platform. A first example in this regard is OpenAI, which has just launched its ChatGPT app for iPhone; it will pay Apple 30% of the revenue generated from the app. In addition to artificial intelligence companies providing services through Apple's platform, the company can use its huge cash reserves to make major investments in artificial intelligence that it builds itself or acquires.

• Adobe (ADBE) produces software for content creation, marketing, data analysis, document management, and publishing. Its flagship product, Creative Cloud, is a design software suite sold by subscription. In 2022, Adobe announced new AI and machine learning (ML) capabilities in its Experience Cloud product, a marketing and analytics suite. These advances include predictive capabilities that help sales and marketing teams understand how different facets of marketing campaigns affect customers' purchasing decisions. They can use this information to optimize campaigns and their budgets.

The strongest ETFs in the AI field

But for those seeking broader exposure, exchange-traded funds (ETF) offer an efficient and simple way to invest in AI stocks. Similar to other types of thematic investments, such as blockchain technology, cybersecurity, and genomics, AI ETFs contain a basket of publicly listed companies involved in all stages of artificial intelligence, from development to implementation. Thus, an ETF gives the investor a portfolio of several AI stocks through a single investment.

Some of the most widely accepted AI ETFs are listed here. As you consider these options, make sure you study the fund prospectus to understand the investment strategy, holdings, and fees.

• iShares Exponential Technologies ETF (XT) is a large-cap fund that selects global stocks trying to disrupt their industries. The changes have also affected artificial intelligence technology stocks, which represent almost half of the fund.

• Defiance Machine Learning & Quantum Computing ETF (QTUM) has only 112 million USD under management. The fund invests in companies that want to commercialize their research and development in quantum computing systems. Its benchmark is the BlueStar Quantum Computing and Machine Learning Index.

• ROBO Global Robotics & Automation Index ETF (ROBO) invests in robotics, automation, and artificial intelligence companies and invests in both growth stocks and value stocks.

• Direxion Robotics, Artificial Intelligence & Automation Index Bull 2X Shares (UBOT). This is a leveraged ETF that aims to generate twice the return of its benchmark, the Global Robotics and Artificial Intelligence Thematic Index, each day. The fund invests in companies in developed markets expected to benefit from robotics and artificial intelligence. Top holdings include Nvidia, Keyence, and Intuitive Surgical.

• ETF Global X Robotics & Artificial Intelligence (BOTZ). This fund is a non-leveraged version of UBOT. It tracks the same index, but the daily return will be approximately half that of UBOT. The fund's largest assets are the same as UBOT's, but their weights are different.

• Franklin Intelligent QM Machines (IQM). This Franklin ETF targets a broader range of companies than either of the two funds above. Its benchmark is the Russell 3000 index, although its mandate is narrower: IQM seeks stocks of companies developing technologies that support artificial intelligence, machine learning, and automated processes. Top holdings include automaker Tesla, Apple, and semiconductor firm ASML Holdings.

• AIQ Artificial Intelligence & Technology (AIQ). This ETF looks for innovators in artificial intelligence, whether established names or newcomers, regardless of industry or geography. Its largest holdings include Meta Platforms, CRM leader Salesforce, and software company Adobe.

• IRBO is the most diversified of the AI funds, with 118 holdings in February. About half are U.S. companies, but there is also double-digit exposure to China and Japan. No stock represents more than 2% of the portfolio. The top ten holdings include Spotify, Meta Platforms, and Baidu.

• Wood's ARKQ invests in 30 to 50 companies that develop or support autonomous transportation, robotics and automation, 3D printing, energy storage, and space exploration. American companies represent almost 90% of the fund, and Tesla is the main holding.

A final word on investing in artificial intelligence

Participating in a new technology trend, such as artificial intelligence, can be exciting and rewarding for investors. However, it is worth remembering that, like anything else in the stock market, AI is also subject to the reality of the hype cycle.

New technological discoveries inspire new dynamic companies and receive intense media coverage, sending stock prices skyward. But triple-digit annual gains do not last forever, and the market eventually separates a few winners from many losers.

If you are thinking about investing in AI, the first step is to do a lot of research. Read, learn about the technology, and assess the risks before buying. There is no need to go all-in on AI – intelligent investors rely on diversification to make the most of their investments. Consider discussing your artificial intelligence investment ideas with a financial specialist.

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Risk warning: This article is for information and education only, reflects the situation as of its publication date and does not constitute investment advice, an offer or a recommendation to buy or sell any financial instrument. Trading leveraged instruments (Forex, CFDs) and crypto-assets carries a high risk of losing your capital. Past performance does not guarantee future results. Before investing, assess your objectives and risk tolerance and, if needed, consult a licensed adviser. Details: Disclaimer & Risk Warning.