Why is artificial intelligence important in the stock market?

What is artificial intelligence (AI)?

Arguably, the biggest contribution to Allied victory in the WWII was from Alan Turing.

Turing, a mathematical genius, cracked the enigma messenger code of the Nazi Germany forces. He did it using a machine called a “Bombe”.

It consisted of around 100 rotating drums, along with ten miles of wire, and weighed more than a tonne.

It allowed Britain to gain intelligence on the German forces, saving millions of lives.

You could say, it was wartime Britain’s first ever artificial intelligence (AI).

Turing wasn’t finished there.

He remained curious about the potential of machines. He asked the question if machines could “think”.

This is the idea behind AI.

To answer this, Turing created a “Turing test”.

The Turing test determines whether a machine can demonstrate human intelligence and “mimic” the actions of humans.

If a machine can engage in conversation with a human, without being detected as a machine by an “interrogator”, it has demonstrated human intelligence.

Turing tests are not an official benchmark for AI technology. But they are commonly referenced when deciding if AI is “real” or not.

Real AI as a pure definition is a machine that can “think” for itself. It has not been achieved yet. Instead, we have many instances of what we would call “Ai-lite”.

An example is the use of chatbots.

Chatbots can be used to answer customer enquiries without the need for a human at the other end of the line. This doesn’t make them real AI, but demonstrates sophisticated use of “machine learning”.

Machine learning means a machine that can understand and process data in a loop, building “knowledge”. Therefore, it can simulate human response.

However, it doesn’t actively think for itself as a human would. It quickly references an extensive and growing database of data and information.

For instance, say you wanted a refund from Amazon.

When you type the word “refund” into the chatbot, the chatbot immediately recognises the word. It then delivers a pre-determined response, coordinated by various algorithms and gets the refund process underway.

Another example is self-parking vehicles.

Self-parking vehicles use sensors and machine learning to recognise spaces around them. They alert the vehicle control systems, and the car is parked without human intervention.

These are all examples of simulated human actions. But none of them are actually real AI.

Nonetheless, “AI” is a buzz phrase which is so broad that it now encompasses a huge area of machine “intelligence”.

In fact, AI as an industry is predicted to top $422 billion by 2028. That’s almost a 10-fold increase in size from today.

How will AI affect our future? 

AI is predicted to make a huge impact on the global economy and greatly improve the quality of our lives.

It’s seen as critical to the future of industry all over the world.

In this context, we are talking about everything from healthcare to travel, to telecommunications transport and logistics, and more.

There are concerns that AI could have a negative impact on our future. There’s a realisation it could replace people in certain jobs.

Using the chatbot example, the technology may be more appealing than a person.

A chatbot is cheaper, faster and requires minimal overhead costs. For example, you don’t pay a chatbot wages and it is never off sick.

However, it’s silly to assume that AI will entirely replace humans.

AI will likely co-exist alongside humans. AI machines are faster and more accurate. But they’re not intuitive. They don’t have emotional intelligence (EQ). They don’t have compassion or empathy. Perhaps they never will.

That means the ideal outcome is probably humans + AI in industry.

For example, in the healthcare industry, social interaction between patient and doctor can’t be replaced with AI. Or while a self-flying plane might be efficient and safe, the human desire to still have a human pilot in the cockpit will be hard to overcome.

Is AI a good investment? Should I invest in it?

AI is becoming a huge part of our lives. It’s hard to think of a world without artificial intelligence in our future.

As technology gets more advanced, it will get better and more valuable.

We expect it will be one of the big investment ideas of the decade.

However, AI investment does have some drawbacks.

The technology is very expensive and early-stage.

AI software can cost in excess of $1 million, so it doesn’t come cheap.

AI adoption also creates more opportunities for cyber-attack.

According to Cybersecurity Ventures, cyber-attacks are set to cost the world $10 trillion annually by 2025.

As a result, AI adoption will slow if protection isn’t in place.

How do I invest in artificial intelligence?

First is to look at some of the companies developing AI technologies.

Two examples of this are IBM and Micron Technologies.

IBM (NYSE: IBM) is a leading provider of AI-driven technologies. Its solution, known as IBM Watson, provides AI tools for business systems, allowing them to improve automation and efficiency.

Micron Technologies (NASDAQ: MU) is a semiconductor company that makes memory and storage solutions.

Micron’s high-capacity, high-performance chips are helping its customers to drive innovation in the AI space. One of Micron’s largest customers is technology company Hewlett Packard, who accounts for around 30% of sales.

Other companies that are developing AI technologies include Apple (NASDAQ: AAPL) and Alphabet Inc. (NASDAQ: GOOGL).

Did you know that an iPhone already has advanced AI technology?

You know that little “Siri” voice in your phone? That’s advanced AI right there!

There are also ETFs in the AI industry that can give exposure to a broad range of companies.

For example, the Global Robotics & Artificial Intelligence ETF (NASDQAQ: BOTZ) is a fund that invests in companies that will benefit from the “utilisation of aritificial intelligence.”

The fund holds 37 stocks, including tech giant Nvidia (NASDAQ: NVDA) and finance platform Upstart Holdings. (NASDAQ: UPST).

The age of AI is only just getting started. The way we interact with technology will never be the same again. AI is a big part of our future. And we think a great place to look to invest.

Sam Volkering
Editor, Exponential Investor

Elliott Playle
Analyst, Exponential Investor