What Is Artificial Intelligence?
Artificial intelligence (AI) aims to replicate or surpass the intelligence of humans via programming software. It is a field in computer science focused on the development of machines to perform the same tasks usually required of human intelligence. AI-based software seeks to think and learn like humans.
Artificial intelligence is viewed as a disruptive innovation in technology that will increase productivity for small businesses and large companies alike.
What Are the Different Types of Artificial Intelligence?
Since the advent of the concept, AI technology has taken several different forms, each with its own unique applications.
Narrow AI
Narrow AI, or weak AI, has limited scope and function, typically designed to perform a particular task, such as a chatbot or voice assistants like Siri from Apple (Nasdaq: AAPL) or Alexa by Amazon (Nasdaq: AMZN) that offer responses to questions.
General AI
General AI, also referred to as strong AI or human AI, is when machines take on and exhibit human-like features such as emotion and self-awareness. For example, movies such as I, Robot and Ex-Machina show robots with human-like features and abilities. Still, general AI remains a mostly theoretical concept.
Machine Learning
Machine learning focuses on developing algorithms and statistical models for machines that can learn and make predictions based on data. Machine learning applications include speech recognition and medical diagnosis.
Deep Learning
Deep learning is a subset of machine learning and takes machine learning a step further by allowing machines to essentially think for themselves. The computers behind self-driving vehicles, for example, process large amounts of data such as moving and still objects near and far, speed, and weather to operate cars on their own.
Generative AI
Generative AI is AI that creates new content, which can be in the form of writing, drawing, and video. OpenAI’s ChatGPT is an example of generative AI because it accepts user queries and writes unique and original responses based on the massive amount of data it was trained on.
How to Invest in AI
Like with most industries, a variety of investment vehicles exist that can provide portfolio exposure to AI tech. From individual companies to relatively diversified intra-industry ETFs, there are many options available to both passive investors and active traders.
Shares of AI Companies
Many companies, large and small, are developing artificial intelligence in some form and are incorporating them into their services and devices. Artificial intelligence can be a thematic investing strategy.
Software
Software makers are making inroads with artificial intelligence and are offering AI-based services to users. Microsoft (Nasdaq: MSFT), Google (Nasdaq: GOOG), and Amazon are among the biggest companies with notable operations in artificial intelligence, and competition is intensifying to develop AI-based services and products for consumers.
Microsoft owns a stake in OpenAI, which developed ChatGPT, the popular machine learning-based application that can generate text by using large datasets of textual information. Microsoft is already integrating AI into its Bing search engine and plans to incorporate it into other products, with plans of providing additional commercial services and products.
Google uses AI across its range of products, from Search and Maps to Gmail and YouTube, as well as for Google Ads and cloud products. Amazon is developing generative AI for its cloud platform—Amazon Web Services—to allow customers to create their own bots. Adobe (Nasdaq: ADBE) has a feature on its popular Photoshop program known as Generative Fill, which allows users to extend images and add and remove objects from their pictures.
Other big companies developing their own AI products and services include Meta (NYSE: FB), Apple, Tesla (Nasdaq: TSLA), and IBM (NYSE: IBM), Cerence (Nasdaq: CRNC), a maker of AI-based assisted driving software for automobiles, and Synopsys (Nasdaq: SNPS), which uses AI to help in the custom design of semiconductors. Other smaller companies include C3.ai (NYSE: AI) and BigBear.ai Holdings (NYSE: BBAI), both of which provide customized AI-powered analytics and solutions.
Hardware
There are a few companies dedicated to creating the hardware that facilitates artificial intelligence. Nvidia (Nasdaq: NVDA) makes graphic processing units (GPUs) that are key in running deep-learning algorithms. The company has also expanded into cloud services with AI. Advanced Micro Devices (NYSE: AMD) also makes GPUs as well as central processing units (CPUs) for AI.
As of June 2023, Taiwan Semiconductor Manufacturing Company (TSMC) has seen an increase in orders for customized chips that are used for generative AI applications. Intel (Nasdaq: INTC), the world’s biggest chipmaker, plans to develop chips for generative AI use.
Exchange Traded Funds
There are exchange-traded funds with holdings of companies involved in artificial intelligence, and mutual fund companies are trying to create funds dedicated to AI. Some AI companies are part of an established broad technology-focused fund such as Blackstone’s iShares U.S. Technology ETF, which started trading in 2000.
Some of the newer funds dedicated to AI include WisdomTree Artificial Intelligence and Innovation Fund, which began trading in December 2021. Wisdom Tree’s major holdings include Nvidia, Advanced Micro, Cerence, and Synopsis.
Venture Capital
Investing in venture capital firms is an indirect way to invest in artificial intelligence companies. VC firms may start up a fund and attract investment targeted to AI-specific companies. Andreessen Horowitz (a16z), for example, is an investor in big-data analytics provider Databricks, which has a generative AI platform similar to ChatGPT and is continually on the lookout for additional potential investments in the field.
Why Has Artificial Intelligence Become a Popular Investment Idea?
Investors in 2023 have turned to artificial intelligence as the next big idea in stock investment. It’s viewed as a disruptive technology that’s supposed to transform the way companies operate and how they do business by making them more efficient.
Artificial intelligence has been around conceptually for decades, but its development is relatively nascent. AI technology continues to grow at a rapid pace due to the recent advances in software programming and hardware.
As of June 2023, shares of companies including Microsoft, Amazon, and Google had risen sharply since the start of the year on expectations that they will be able to make significant gains with AI.
Still, some business leaders such as Elon Musk and scientists have been outspoken about the lack of regulation over artificial intelligence, saying that “AI systems with human-competitive intelligence can pose profound risks to society and humanity,” and that the push for ever-powerful AI technology may lead humans to lose control over them. Limitations to artificial intelligence include lack of common sense, lack of creativity and innovation, and lack of emotional intelligence.
Should I Invest in AI?
As of 2023, investment in companies involved in artificial intelligence has become popular, evident by the significant gains in the share prices of some of the biggest companies touting AI.
The allure of riding the upward wave of AI investment is tempting, and while significant gains are possible, a bubble or crash in the industry due to legal regulation or other unforeseen challenges is just as likely. Always do your research, and never invest more than you can stand to lose in risky asset classes like up-and-coming tech stocks.
