Man meets machine

E*TRADE Securities2

06/29/17
Whispers of artificial intelligence, or AI, have been evolving into steady chatter for some time, and products that incorporate AI concepts are becoming ubiquitous—just ask Amazon’s Alexa, she’ll tell you. Pure-play investment opportunities in AI are still to surface, but with talk of the emerging technology growing, we take a look at:
Industries on the AI edge

Fitting the profile

Technology appears to be headed toward a place where machines can actually react to and rationalize scenarios, ultimately learning from the experience and mimicking human behavior. For investors interested in exploring exposure to AI, the types of companies at the forefront of AI share similar characteristics—they’re digitally adept, interested in technologies that support and improve their existing operations, and able to commit significant capital to research and development: 

  • Major tech firms. Not surprisingly, investors will find that some of the most prominent names in technology, including Alphabet, Facebook, and Microsoft, are at the forefront of AI and have invested heavily. Chipmakers like Nvidia, whose market for its AI processors includes Internet and tech companies, are firmly embedded in the space as well
  • Big data outfits. Data jockeys, including IBM and Salesforce.com, are using AI-powered analytics to mine insights and make recommendations to enhance customer relationship management operations. Downstream, increased adoption of such knowledge could lead to investment opportunities in advertising, financial services, and health care, among others.1    
  • Auto industry players. Car manufacturers and suppliers alike are big investors in AI concepts. Driverless car technology could be on the cusp of penetrating everyday life, and creating new dynamics to consider when looking at investments in the auto industry. Electric vehicle maker Tesla, Alphabet’s Waymo, and traditional auto players like Ford and General Motors are striving to implement AI throughout their fleets.   

These aren’t the only ones optimistic about AI—market intelligence firm Tractica estimates global AI software revenue will rise from $1.4 billion in 2016 to a rather staggering $59.6 billion by 2025.2     

Risk of the unknown

It’s still early days in the AI space, but development and adoption are gaining traction. After all, it wasn’t too long ago that IBM’s chess-playing machine Deep Blue® was a novel concept. Now, Deep Blue’s cousin, WatsonTM, helps doctors design cancer treatments.2

Among developments for investors to watch as AI continues to infiltrate the economy is how people and markets react. For one, AI could change the labor market significantly if companies increasingly automate their operations. Also, Reuters recently highlighted some national security concerns about Chinese investments in U.S. tech firms, and how the U.S. government might come to oversee foreign investment in such technology that falls outside of existing export controls.3 Likely drawing the government’s attention has been China’s search engine giant, Baidu, making acquisition plays in Silicon Valley.

For companies, even with many unknowns, the risks of not incorporating AI concepts into their operations may soon become too great to ignore as advancement continues. And for investors, that could mean an increasing number of investment opportunities to explore over the long term as machines become more, well, human.      

 

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1. “Artificial Intelligence Software Revenue to Reach $59.8 Billion Worldwide by 2025,” Tractica, 2 May 2017. https://www.tractica.com/newsroom/press-releases/artificial-intelligence-software-revenue-to-reach-59-8-billion-worldwide-by-2025

2. IBM’s 100 Icons of Progress. http://www-03.ibm.com/ibm/history/ibm100/us/en/icons/deepblue

3. Stewart, Phil. “U.S. weighs restricting Chinese investment in artificial intelligence,” Reuters, 14 Jun. 2017. https://www.reuters.com/article/us-usa-china-artificialintelligence-idUSKBN1942OX