The rapid pace of innovation in artificial intelligence (AI) has brought into reality many experiences that were previously only thought of as fiction. As AI continues to disrupt the way we live and work, how can investors put money to work on this cutting-edge technology that is rapidly reshaping society?
We’ve created this handy beginner’s guide to help you better understand what AI is and how companies are using the technology. Plus, we’ve identified some popular investments in this fast-growing sector.
What is AI?
AI attempts to replicate human intelligence in a computer or machine more quickly and accurately. Companies like Microsoft (MSFT) and Google (GOOGL) are using the technology to program machines to solve problems, answer questions, and perform tasks previously done by humans.
As systems become more intelligent, AI becomes more powerful and its applications and applications reach every stock sector and industry. For example, the transportation sector is undergoing a massive transformation around electric and autonomous vehicles, potentially generating trillions of dollars for the global economy. Similarly, the banking industry is using AI to improve decision-making in high-speed trading, automate back-office processes such as risk management or even reduce costs by deploying humanoid robots in branches. And these are just a few examples of applications of artificial intelligence.
Analysts at International Data Corp. (IDC), a market intelligence provider, predict that global revenues for the AI market could reach $900 billion by 2026with a compound annual growth rate of 18.6 percent between 2023 and 2026.
“ChatGPT’s explosive global popularity has given us the first real inflection point in public adoption of AI,” said Ritu Jyoti, group vice president, Worldwide Artificial Intelligence and Automation Market Research and Advisory Services at IDC. “As investments in AI and automation increase, the focus on results, governance and risk management is critical.”
How companies use AI
Whether it’s law enforcement agencies using facial recognition software to conduct investigations, AI-powered home appliances like Samsung’s smart refrigerators making our lives easier, or robo-advisors using automated algorithm-based models to optimize our investments and make recommendations to do financial planning, AI is everywhere.
At the heart of AI is big data, which data scientists, engineers, and other experts use to build complex algorithms that can incorporate new information to improve their performance and accuracy. For example, with machine learning, a subfield of AI, organizations like Netflix use user data to make content recommendations and predictions. As users enter more information, such as giving a show a thumbs up or down, the system stores and processes that knowledge, making it incrementally smarter.
According to a survey of more than 350 AI researchers conducted by the University of Oxford and Yale University in 2015, there is a 50 percent chance that machines will outperform humans in all tasks by the year 2060. And some tech visionaries like Tesla CEO Elon Musk believe it could be a lot earlier.
Organizations are increasingly leveraging the power of AI to make critical business decisions, such as prioritizing medical care in the event of an emergency, improving hiring practices, and determining eligibility for credit, housing, and other essential services.
There is also a lot of discussion about the impact of AI on the labor market. As people’s dependence on machines increases, so does the need for workers to improve and learn new skills. The World Economic Forum estimates that by 2030 more than 1 billion peopleAbout a third of jobs worldwide could be affected by the technological revolution.
To address the limitations of AI – at least until the technology matures – organizational leaders are relying on augmented intelligence, which combines machine intelligence and human expertise. Essentially, augmented intelligence allows people to work better and faster. However, the need for human input decreases as AI becomes stronger.
How to invest in artificial intelligence
For most retail investors, chances are you are already exposed to AI, as many large US publicly traded companies are using AI or are actively looking to invest in the technology.
But for those looking for broader exposure, exchange-traded funds (ETFs) offer an efficient and convenient way to invest in AI stocks.
Like other thematic investment types – such as blockchain technology, cybersecurity and genomics – AI ETFs contain a basket of publicly traded companies involved in different phases of AI, from development to implementation.
Some of the most commonly used AI ETFs are described here. When considering these options, be sure to read the fund’s prospectus to understand the investment strategy, investments and costs.
Please note: All ETF data below is as of January 16, 2024.
Global X Robotics & Artificial Intelligence ETF (BOTZ)
BOTZ invests in companies focused on AI and robotics technologies across all sectors of developed global markets.
Fund issuer: Mirae Asset global investments
Assets under management: $2.3 billion
Top positions: NVIDIA (NVDA), ABB Ltd (ABBN) and Intuitive Surgery (ISRG)
Cost ratio: 0.69 percent
ARK Autonomous Technology & Robotics ETF (ARKQ)
ARKQ identifies and invests in domestic and foreign companies that can benefit from emerging technologies and automation.
Fund issuer: ARK Invest
Assets under management: $973.1 million
Top positions: Tesla (TSLA), Iridium Communications (IRDM), UiPath (PATH) and Kratos Defense & Security Solutions (KTOS)
Cost ratio: 0.75 percent
ROBO Global Robotics and Automation Index ETF (ROBO)
ROBO invests in a global index of companies that stimulate innovation through robotics, automation and AI.
Fund issuer: Exchange traded concepts
Assets under management: $1.3 billion
Top positions: Azenta (AZTA), Intuitive Surgical Inc (ISRG), Illumina (ILMN) and iRhythm Technologies (IRTC)
Cost ratio: 0.95 percent
Editorial Disclaimer: All investors are advised to conduct their own independent research into investment strategies before making any investment decision. In addition, investors are advised that the past performance of investment products does not guarantee future price increases.
