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The rise of artificial intelligence has been talked about quite a lot in the past decade. Some are concerned AI will make humans useless, and others believe it’ll be the key to solving the mysteries of the universe. Some even say it can help to make people practically immortal.
After the release of ChatGPT – a language bot that uses deep learning to interact in a conversational way – the conversation about the future of AI has sparked again.
There’s no doubt that if AI technology develops as rapidly as predicted, it will have a tremendous impact on every aspect of our lives. As Google CEO Sundar Pichai stated, AI will transform our lives more than electricity or fire.
As an investor, I’m more than curious to see whether something that significant is worth investing in.
For the record, this article is not about the basics or the technical side of AI development, there are plenty of writers who know about that stuff a lot more than me.
What I focus on is the investing side of things. So, let’s see why AI is one of the top investment trends in 2023 and beyond!
Current AI Market
According to Fortune Business Insight, the worldwide AI market size was valued at $328.34 billion in 2021. While there are many different views about the true market size, it’s safe to say that it’s still in its early stages.
Currently, there are two countries fighting for AI leadership: China and the United States. In China, developing AI and other emerging technologies was mentioned as a top priority for 2023 and beyond.
In the U.S., besides the government, it’s the CEOs of the companies like Amazon, Microsoft, and Google, who’re investing heavily in AI.
What’s surprising, though, is that Japan is actually the number one country adopting AI. Also, Japan is still the number one country in exporting robotics, and they are focusing on developing artificial intelligence for medical and industrial purposes.
Most of the AI-related research comes from China and the U.S., with India being the distant third. Of course, the amount of research does not directly indicate success, but it does give a general idea of how seriously different countries take AI development.
The Leading Companies in Artificial Intelligence
The biggest companies that have invested heavily in AI include some very familiar names like Meta, Alphabet, Amazon, Apple, Microsoft, Tencent, and Baidu.
As you can see, the biggest companies in the U.S. are about to also become the biggest artificial intelligence companies. The question is, how big can these companies get?
It’s worth remembering that if you buy a company whose market cap is, let’s say $2 trillion, it needs to rise to $4 trillion to make a 100% return. The bigger the company gets, the harder it is to double in value. This is obviously a crude example and there are a lot of other things to consider, but you get the idea.
Also, there’s been quite a lot of discussion over the years about whether the leading tech companies are getting too big. When a company starts to become massive, the risk of regulation increases.
Tech giants aside, there’s an army of smaller companies that are developing AI at a rapid pace. While technological breakthroughs may probably come from the companies that have the most resources for research, there will probably be a lot of surprises from smaller companies over the next decade.
The Future of AI Market
Depending on the research, the AI market is expected to grow at a CAGR of 20-38% for the next 7 years. The fact is that it seems AI will have a tremendous impact on the global economy.
According to PwC, for the next 7 years, the total economic impact of AI on the global economy would be about $15.7 trillion.
Fun fact: $15.7 trillion is actually more than the current output of China and India put together. Considering the impact China and India have on the world, you could say that AI is and will be kind of a big deal.
Another interesting fact in PwC’s forecasts is that AI’s total impact on North America’s GDP would be almost 15% ($3.7 trillion), and over 26% ($7.0 trillion) on China. What this would indicate is that the rise of AI would benefit China the most.
A while ago I wrote about China’s biggest economic problems, and it would seem that AI just might be the key to China’s future growth.
What Fields Artificial Intelligence Affects the Most
The rise of AI will most likely affect everyone to some degree, but some sectors are affected more than others.
At the moment it would seem that there are two industries that are especially exposed to disruption: healthcare and finance.
Healthcare
In healthcare, AI will support diagnosis, making diagnoses both cheaper and faster. Some researchers have shown that AI is already making more accurate diagnoses than doctors. AI can also be used to generate personalized treatment plans, thus increasing productivity in healthcare.
Healthcare seems to be one of the industries where new technologies complement each other. Personally, I’m particularly looking forward to the developments made by combining AI with genomics research.
At some point, AI might detect serious health problems beforehand by monitoring our bodies and provide personalized treatment that’s based on our unique genome.
There’s an excellent book by David Sinclair about the future of healthcare called Lifespan. I found the book extremely informative, and definitely recommend it to everyone who is interested in prolonging their life (I mean who isn’t?).
It’s safe to say that AI & Robotics has the potential to revolutionize healthcare, which can offer a lot of interesting possibilities for investors.
Finance
Coming from someone who works in the field, I’m quite certain that most mundane tasks that are done today in banks can and should be done by AI. There’s really no reason why an employee should manually go through loan applications, for example.
Artificial intelligence technology can also be used for risk management and to perform more complex data analysis.
When we think about financial advising, though, things get more interesting. I have no doubt that AI could handle financial advising in most cases since, in the end, it’s more of a numbers game than an art.
I think the same goes with financial advisors as with doctors, that artificial intelligence will probably make better decisions that are based purely on logic and numbers.
While AI might make better decisions, I think the real issue is that will people trust it.
For professionals and experienced individuals, AI can be an excellent extra tool in the toolbox. For others, the issue might be whether they trust it or not. Sometimes the job of a financial advisor is to persuade people to save and invest in the first place, and it usually takes a human connection to build trust.
While human advisors and human expertise are probably still needed in the future, I do believe that most work done in finance will be outsourced to AI in the future. Personally, I would very much welcome AI technology to help with wealth management and decision-making processes.
How to Invest in AI
All right, so now we know that AI is a major disruptive force. The next thing is to decide how to invest in it.
As with all new technology, the biggest winners are hard to recognize beforehand. When a market grows as rapidly as the AI market, there are usually a couple of big winners and a lot of companies that don’t make it.
One strategy is to invest a bulk in an ETF and then pick 3-5 companies for additional purchases. The idea is to use an ETF to ensure you own the winning companies. After that, you can pick the most promising stocks and buy them directly to get even higher returns.
The way I usually go about exploring companies in a new field, is to take an appropriate ETF and start with the 5-10 biggest companies and see if there is something interesting going on.
After that, I research the fundamentals, and if everything checks out, I may buy it. It’s a simple process, but quite an efficient one.
In these developing fields, I prefer companies that have already proven they can make a profit and have a lot of cash for R&D, and also in case of bad times.
To summarize, a working and proven business model with a strong balance sheet is my bet for a winning combination.
Still, I believe the safest choice is to just buy an ETF, which saves you a lot of time and possible trouble. There’s a great article about the best AI ETFs in The Motley Fool, that you should definitely check out!
Summary
All the different research I read for this article have one thing in common: they all agree that AI market will grow, and it will grow fast. The global growth range forecasts varied mostly from about 20% to 40%, which is a tremendous rate of growth.
Another notion was that artificial intelligence will have an impact on almost every sector imaginable. That being said, there are some that AI will most likely have the biggest impact on: healthcare, and finance.
While AI may not replace human intelligence anytime soon, it can be used to solve problems, find patterns and do big data analysis, as well as reducing costs and advance technological innovations.
One curious notion was that it’s entirely possible that we’ll have completely new sectors after AI develops further. At this point, I wouldn’t even begin to guess what they are.
The biggest companies like Microsoft, Alphabet, and Apple are all investing in AI technology. The competition between the giants (not to mention between countries) is fierce.
When it comes to new technology, predicting the winners is extremely hard. The sad truth is that there are few big winners and a lot of losers. Analyzing companies in a growing industry is extremely difficult, but the rewards can be outstanding.
While there are a lot of questions in the air, I’d say one thing is certain: it’s an exciting time to be an investor!
