Ever since the chilling confrontation between HAL-900 and astronaut Dave Bowman in 2001: A Space Odyssey, human beings have been captivated by the idea of computers with advanced intelligence taking over the world. However, leaving aside HAL and the nightmarish cyborgs of The Terminator fame, the world has become enamored with the promise of artificial intelligence (AI) in advancing technology and productivity.
Today, investment in R&D of AI is growing exponentially and hundreds of startups researching AI have been launched in just the last few years. According to a forecast by Allied Market Research, the global AI market is expected to grow at a compound annual rate of 55.6% between 2018 and 2025.
The question is how average investors might be able to profit from this phenomenal growth.
What Exactly is Artificial Intelligence?
The Motley Fool Stock Advisor describes AI as “…the next step in computing, whereby algorithms can learn from patterns and features in the data and process without human programming.” The ultimate objective of AI is replicate the human thinking and remembering that goes on inside the human brain, though it could take decades to get there.
Although R&D is still in its early stages, companies expect to use AI to improve products and efficiency without adding personnel. AI can enable computers and robots to perform routine tasks indefinitely and improve outcomes in product development, manufacturing, healthcare, and education.
What’s the Best Way to Invest in AI?
As it currently stands, there is really no way to invest “directly” into AI. While there are hundreds of new ventures dedicated to the development of AI, there are no investable publicly traded companies with AI as their primary focus. For now, trying to invest with the explicit goal of “investing in the future of AI” is at best chasing after the wind.
But there are companies involved in the collection and processing of “big data” or that provide the technological superstructure to support AI applications. As with other technological advancements of the past, investing in the development and application of AI can be done by proxy in companies that use data or that support the collection and use of data. Your best bet is to always stick with well-established and well-managed companies with strong earnings growth and the capacity to invest in their future growth.
Here are four companies to consider for investing in AI:
Google (Alphabet Inc.)
Google (NASDAQ: GOOGL) has taken the lead in AI research, spreading its vast cash horde around several projects, including the introduction of its new personal assistant, Google Duplex. One of its bigger investments has been in driverless cars through Waymo, it’s subsidiary company. Waymo’s autonomous vehicles have logged more than 10 million miles on public roads, giving it the lead in this space.
Microsoft (NASDAQ: MSFT) competes directly with Amazon and Google in the cloud computing and storage space and it may have the edge in its AI development. They have already developed AI applications for precision medicine, assistive robotics, and consumer-facing technology with its virtual assistant, Cortana. Its strongest AI platform is Microsoft Azure, which incorporates a range of applications for more efficiently collecting and analyzing data.
As the world’s largest e-commerce retailer and global leader in digital advertising, Amazon (NASDAQ: AMZN) is expected to benefit greatly from AI applications that can obtain and analyze better information on consumers. Amazon has been on the AI forefront with Alexa and it looks to heavily utilize AI in its new healthcare partnership with Berkshire Hathaway and JPMorgan Chase.
If a company wants to enable AI in the cloud, gaming, big data, or self-driving cars among other applications, it will need Nvidia’s leading-edge graphics processing unit (GPU) technology. In partnership with the Mayo Clinic, Nvidia recently experienced a major breakthrough in AI-driven brain imaging. Like most chipmakers, Nvidia’s stock has experienced a lot of volatility, but its growth prospects for AI development are strong.
A Word of Caution
AI is expected to drive a technological revolution over the next several decades, so there will be plenty of opportunities to invest in its growth. However, as with any new or developing technology, there are inherent risks. This would be a good time to remember the lessons of the dotcom boom and bust when investors were driving up prices of companies that had no revenues, no earnings and no immediate prospect of earnings just because it was new. Investors are better off sticking with their knitting by buying great, well-managed companies that will benefit from all technological innovations, including AI.