The text has not been altered by humans, though (human) editor's notes in red text have been added where appropriate.
Artificial intelligence (AI) is no longer a concept confined to the realm of science fiction. It has seamlessly embedded itself into our daily lives, from the mundane, like predictive texting, to the complex, like precision medicine. With its rapidly expanding footprint, AI also offers abundant investment opportunities for retail investors. This article aims to outline a roadmap for those interested in capitalizing on the imminent AI revolution. Ed: Slightly self-aggrandizing, but we'll let it pass.
Asset Classes and Risk Profiles
Investing in AI is not a one-size-fits-all approach. Your investment strategy must align with your risk profile and preference for specific asset classes. Here are some of the main categories where AI has a significant influence:
Equities offer a straightforward pathway for retail investors who aspire to embrace the opportunities within the blossoming AI sphere. There are several types of equities that investors can consider:
Blue-chip Stocks: Dominant, multinational corporations provide a robust starting point for investing in AI due to their established stature and their substantial commitments to the sector. Companies such as Google's parent company, Alphabet Inc. (NASDAQ: GOOGL), Amazon (NASDAQ: AMZN), and Microsoft (NASDAQ: MSFT) have invested heavily in AI technology and research. Ed: And yet, none of these companies have any buzz about actual AI products in the marketplace...
These corporations, often dubbed 'blue-chip' companies, benefit from a myriad of advantages that make them uniquely positioned to thrive in the competitive AI landscape. Their extensive resources, research capabilities, data access, and established infrastructure allow them to attract top AI talent and expedite the practical application of AI research. Ed: Not much useful analysis here regarding why these companies in particular are poised to capitalize on AI, rather than be disrupted by more innovative startups with nothing to lose. Despite these strengths, it's important to remember that all equity investments carry a level of risk, including market volatility and economic uncertainties.
AI-Specific Stocks: Investors can also target companies with a more concentrated focus on AI and related technologies. For example, NVIDIA (NASDAQ: NVDA) and Advanced Micro Devices (NASDAQ: AMD) are leading manufacturers of GPUs, which are critical to machine learning tasks. Ed: GPU manufacturing is certainly a sector with high growth opportunities due to AI, but I'd expect a more direct suggestion here in firms actually delivering AI-driven products.Similarly, firms like OpenAI, which are fully dedicated to AI development, present a more focused investment. Ed: That's more like it, but unfortunately OpenAI is private, and there is no guidance at all on how to actually gain exposure to it as an investment.
While these companies could offer high growth potential due to their specialized focus, the risk profile is equally heightened. The rapid pace of technological advancements, regulatory changes, and sector-specific issues represent some of the risks inherent in such investments. Ed: Useless boilerplate.
Exchange-Traded Funds (ETFs): Exchange-Traded Funds provide a balanced approach for those who prefer diversification in their investment portfolio. AI-centric ETFs, such as the Global X Robotics & Artificial Intelligence ETF (NASDAQ: BOTZ), offer a broad investment exposure to the AI industry, mitigating the risks tied to individual stock performance. Ed: 👍
Bonds and Fixed Income
While not the most direct way to capitalize on the AI revolution, bonds issued by tech firms can be a viable alternative for low-risk investors. Corporate bonds from giants like IBM or Microsoft indirectly participate in the AI space and provide a fixed return.
Remember, while bonds have lower risk than equities, they're not risk-free. Always check the credit ratings of the issuing companies.
Ed: Terrible analysis. Fixed income is a limited upside asset class - you only get your coupon payments back in return. Bonds have got to be the worst way to gain portfolio exposure to a high-growth, high-risk sector like AI.
Venture Capital (VC) and Private Equity (PE)
Investing in AI startups through VC or PE funds provides high growth potential. However, this option carries substantial risk, as many startups don't make it past their early stages. It's also less liquid and typically requires significant upfront capital. Ed: 👎 No guidance whatsoever on how a retail investor can participate here.
Cryptocurrencies and Blockchain
AI and blockchain are increasingly intertwined Ed: 🙄, with blockchain providing transparent, decentralized databases that AI can analyze and learn from. Cryptocurrencies like Ethereum offer an opportunity to invest in this intersection.
Crypto-assets are known for their extreme volatility and regulatory uncertainties, making them a high-risk, high-reward investment.
Ed: Easily the worst advice yet. This makes it sound like these are related technologies, when they have nothing at all to do with each other.
Artificial intelligence's industry-agnostic nature allows for its application across a multitude of sectors. Here, we highlight a few promising industries and delve into how AI might revolutionize them:
AI has the potential to transform healthcare by making diagnostics more precise, patient care more personalized, and drug discovery more efficient. Deep learning algorithms are being used to analyze medical imaging and detect diseases early. Additionally, AI can help provide personalized healthcare through the analysis of individual genetic makeup, lifestyle, and other health data to predict future health outcomes and recommend preventative measures.
Ed: Surprisingly strong. Medical use cases for AI probably have the highest commercial application vs. consumer buzz ratio. This will absolutely be a sector to watch in the coming 5+ years.
A surprising application of AI is in mental health. For instance, AI-powered chatbots are being used to provide mental health support by providing immediate, stigma-free counseling.
Teladoc Health (NYSE: TDOC) is a leading telemedicine company that integrates AI to analyze patient data and recommend personalized treatment plans. Another company, Moderna (NASDAQ: MRNA), is using AI for faster and more efficient drug discovery and vaccine development, as demonstrated during the COVID-19 pandemic.
The ARK Genomic Revolution ETF (NYSEARCA: ARKG) is an ETF that provides broad exposure to the genomic healthcare sector, including many companies utilizing AI in their operations.
AI is reshaping the financial industry by enabling automated trading systems, robo-advisors for personalized financial planning, and sophisticated fraud detection systems. With the power of AI, vast amounts of financial data can be analyzed for trends that humans might miss, enabling more efficient market predictions.
Ed: The missed nuance is that this tech has already been available to sophisticated institutions for years. The real unlock is going to be the democratization of big-data analysis. Allowing a start-up firm or mom-and-pop shop to plug gigabytes of raw data into a platform that can automatically return actionable insights will be huge.
One potentially surprising use of AI is in the area of ESG (Environmental, Social, and Governance) investing. AI algorithms are being used to analyze companies' ESG performance, going beyond traditional data to include social media sentiments and news articles.
Upstart Holdings (NASDAQ: UPST), an AI lending platform, uses AI to evaluate credit risk more accurately, leading to more approved loans with lower default rates. Similarly, Square (NYSE: SQ) uses AI for personalized financial services and fraud detection.
The Global X FinTech ETF (NASDAQ: FINX) is a fund that offers exposure to the fintech industry, where many companies are incorporating AI in their offerings.
AI is at the heart of self-driving car technology, with its ability to process and interpret vast amounts of data from vehicle sensors in real-time. AI can detect objects, interpret road signs, and make split-second decisions, thus enhancing safety and efficiency.
Unintuitively, the technology behind autonomous vehicles also holds potential for revolutionizing the drone industry and robotic delivery systems.
Tesla (NASDAQ: TSLA) is a forerunner in autonomous vehicle technology Ed: False, with its AI-powered self-driving Ed: 🤣 systems. On the other hand, Luminar Technologies (NASDAQ: LAZR) and Velodyne Lidar (NASDAQ: VLDR) are leading suppliers of LIDAR sensors, a critical component in many autonomous vehicles.
For investors looking to invest broadly in this space, the Global X Autonomous & Electric Vehicles ETF (NASDAQ: DRIV) can be a good choice.
Ed: Seems like bad advice. Tesla has the most mindshare, but no actual lead or advantage in this space. This also lacks imagination. Even in a best case scenario (a huge, huge assumption), autonomous driving seems like one of the least interesting, lowest return applications of AI we're likely to see.
AI is transforming agriculture through precision farming, automated irrigation systems, and real-time crop health analysis, making farming more efficient and sustainable. For example, AI can analyze data from satellite imagery to monitor crop health and predict yields, allowing farmers to make data-driven decisions.
One surprising use of AI is in vertical farming. AI can optimize lighting, temperature, and watering schedules to maximize yield in these indoor farms.
AppHarvest (NASDAQ: APPH), an indoor farming company, uses AI to control growing conditions and improve productivity. Deere & Company (NYSE: DE) utilizes AI in their machinery for precision farming.
The Invesco DB Agriculture Fund (NYSEARCA: DBA) provides broad exposure to the agricultural sector and could be an option for those interested in investing in this area.