Don’t fear the artificial intelligence revolution… invest in it: The big seven shares that can profit from the journey into the unknown with AI
Day by day apprehension is growing over the impact on civilisation of AI – artificial intelligence. But so too is the excitement over its potential.
As the AI phenomenon gathered pace in April, I suggested that it made sense to ensure you had some exposure to the sector, directly or through funds such as Allianz Technology, Polar Technology or Templeton Emerging Markets.
This is still my view. It is reasonable to worry about the consequences of the spread of ChatGPT, Dall-E and other ‘deep-learning’ generative AI systems, that produce images, sound and text, while also wishing to benefit from the boom they will create.
Shares in the mega tech companies in this field have risen sharply.
Investors want to back the big and small businesses that will supply the ‘picks and shovels’, the tools that will enable the tech age gold rush.
For example, C3.ai, a Californian software developer, has risen 237 per cent this year – maybe partly because it trades under the AI ticker symbol.
Nvidia, the Silicon Valley semiconductor giant which makes the chips for ChatGPT, is up by 168 per cent in 2023: its market capitalisation briefly came close to $1trillion (£795billion) last month.
Yet the group is still rated a ‘buy’ by a consensus of analysts, an assessment that highlights the hopes of the returns the AI revolution could yield.
Stephen Yiu, the manager of Blue Whale fund, which holds Nvidia and other AI-related stocks, says: ‘We are at the beginning of the journey. Generative AI is only just turning from a concept in a sci-fi movie into reality.’
Management consultancy McKinsey predicts 70 per cent of companies will be using at least one type of AI by 2030, as bosses exploit these technologies to ‘automate, augment, and accelerate work’.
The ebullient Jensen Huang, Nvidia’s founder and chief executive, is hugely confident, saying: ‘A trillion dollars of installed global data centre infrastructure will transition from general purpose to accelerated computing as companies race to apply generative AI into every product, service and business process.’
The journey will be eventful. Sceptics warn of an AI stock bubble, created by hype: the public-facing version of ChatGPT reached 100m users in two months, causing some investors to have unrealistic expectations about its rapid adoption in education, healthcare and other fields. Meanwhile, anxiety that generative AI could trigger catastrophic job losses is leading to calls for the slowing of its implementation.
This is despite concerns that, if the West takes time to ponder the implications, ‘the bad guys’ could gain an advantage, or so one senior Wall Street figure argues.
Sam Altman, founder of Open AI, the creator of ChatGPT, is among those warning of the existential risks, and Rishi Sunak is to host a global summit that could set rules to regulate AI.
Against this background, optimism about the payback has boosted shares in what Bank of America has dubbed the ‘Magnificent Seven’. They are: Amazon, Apple, Alphabet (owner of Google), Meta (the Facebook and Instagram group), Microsoft, which has a stake in Open AI, Tesla and, of course, Nvidia.
Yiu suggests a broader range of businesses. He says: ‘The tools for AI come from names like ASML, Applied Materials chipmaker and Lam Research, an equipment manufacturer. Intel, Samsung and Taiwan Semiconductor Manufacturing Company build chips.
‘Advanced Micro Devices, Nvidia and wireless technology specialist Qualcomm are experts in design and sales.’
You may be held back from committing to this sector by AI angst – the concern that humankind will be rendered redundant.
Jobs will be lost. But productivity will be improved, and individual ingenuity will still be prized.
Yiu says: ‘AI will help you assemble a Powerpoint presentation far more quickly, but you will still be able to add that personal touch.’
AI systems should also help feed the world. James Yardley, of Fund Calibre, says: ‘Imagine being able to water and feed plants individually in a field – changing their mix depending on the soil and type of plant from one row to another.
‘That’s already happening, with John Deere’s See & Spray AI.’
You may conclude that you are already on the AI journey if you have money in funds with sizeable stakes in Nvidia, like T Rowe Price Global Technology, Martin Currie US Unconstrained or Martin Currie Global Unconstrained.
Microsoft, which is incorporating ChatGPT into its Bing search and Microsoft 365 products, is the largest holding at the F&C trust, where I have some cash.
If you’re looking for more opportunities, Yardley points to Sanlam Global Artificial Intelligence, saying: ‘What this fund’s manager, Chris Ford, doesn’t know about AI really isn’t worth knowing.’
What no one can know is the scale of change AI will bring. Take only bets that you can afford on this journey into the unknown.