Megatrends in AI and Robotics: A Strategic Investment Perspective
January 29, 2024Investors seeking robust portfolio decisions can broaden their perspectives by focusing on megatrends. Megatrends, in the context of investments, denote large-scale societal shifts that not only drive global transformations but also present opportunities for investment growth. They serve as a framework to comprehend the broader context of market dynamics, allowing investors to navigate through the ebbs and flows with a focus on overarching changes in the landscape.
Furthermore, megatrends offer a perspective that extends beyond the daily market fluctuations, providing an extended runway for the growth of technologies, industries, or sectors that have the potential to reshape the investment landscape. In the realm of AI and robotics, understanding and aligning with these megatrends can be strategic for long-term investment success.
The Golden Age of Artificial Intelligence: A Megatrend Reshaping Industries
One prominent megatrend shaping the investment landscape is technological innovation, with a spotlight on artificial intelligence (AI) and its transformative influence on critical technology sectors, including robotics, machine learning, and automation. The influx of substantial funding into the AI sector underscores its significance.
Over the past decade, AI has accounted for 10% of global venture funding, amounting to $257 billion, according to IDC. The momentum is set to continue, with an anticipated $500 billion increase in business investment in AI this year. Tejas Dessai, a research analyst at Global X ETFs, describes this era as the “golden period of AI,” highlighting the potency, speed, and practical applications of the current generation of large language models designed with everyday end-users in mind.
The Emergence of GPT-4 and Its Ripple Effects on AI Innovation
The introduction of new AI models, notably GPT-4 (Generative Pre-trained Transformer 4), is poised to catalyze a substantial innovation cycle downstream. This development is expected to compel both public and private enterprises to intensify their investments in the AI space.
Major technology giants like Microsoft and Google, alongside venture capital firms, have already demonstrated a strong commitment to advancing innovation in AI. Tejas Dessai suggests that non-technology enterprises will likely be compelled to take this paradigm shift more seriously, leading to substantial investments, mergers and acquisitions, and increased consumption of information technology.
Big Tech companies are positioned to play a pivotal role in facilitating the integration of enterprises into the AI landscape. Their strategic position allows them to leverage low-hanging fruit in terms of products that can capture market share, accelerate growth in key verticals, and enhance engagement.
Key AI Trends to Monitor: A Historical Perspective
Despite garnering widespread media attention in recent times, artificial intelligence (AI) is not a new phenomenon. The term “AI” was initially coined in the mid-1950s in a technology proposal titled “A Proposal for the Dartmouth Summer Research Project On Artificial Intelligence” by engineers at Bell Labs and IBM.
The original concept of AI emphasized the idea of allowing technology to take over societal management while humans take a “break.” Envisioned as the ultimate knowledge enhancer, AI was conceived to operate without the need for sleep, hunger, or breaks, presenting the potential to take over tasks when humans were at rest. Understanding the historical context of AI sheds light on the evolution of this transformative technology.
Evolution of AI: From Neural Networks to Commercial Integration
The journey of artificial intelligence (AI) has witnessed significant milestones, starting with the development of neural networks in the 1960s and 1970s. Over the past four decades, machine learning has gained prominence, and more recently, deep learning has emerged as a pivotal phase in AI’s evolution. This trajectory has solidified AI’s presence on the global stage.
In its current state, AI has transitioned from theoretical concepts to full-fledged commercial development and widespread usage by both consumers and businesses. The emphasis is on creating “smarter and faster” AI solutions that are making substantial impacts across various critical fields. This evolution positions AI as a key area of interest for market investors, given its growing integration and influence in diverse sectors.
Top Sectors for AI Integration:
- Funding for AI Enterprise Research: Expectations include enthusiastic funding for AI enterprise research in the coming years. The evolution of AI models is anticipated to result in faster, more affordable, and less computationally intensive models. This trend may enable the deployment of AI models on various devices, including mobile and IoT devices, smartphones, and more. This, in turn, is expected to drive demand for data center capacity, storage, networking components, and the entire value chain.
- AI Development for Product Design and Testing: AI is utilized by scientists, engineers, and data analysts to design, test, and train new products and services for commercial use. This approach allows companies to bring products to market more efficiently and enables the continuous addition of features to existing AI tools in real-time, with minimal financial and human resources costs. The ongoing development and deployment of AI contribute to advancements in various industries.Enterprise AI: Businesses globally are making substantial investments in enterprise AI. This technology is being utilized for a wide range of tasks, from promptly responding to customer service calls to empowering commuters to seamlessly complete work projects in real-time using virtual assistants like “Hey, Alexa.” The integration of AI into enterprise operations is transforming how businesses operate and interact with customers.
AI’s Impact on Global Commerce and Development:
Efficient Problem Solver for Global Commerce: AI is proving to be an efficient and cost-effective problem solver for global commerce, offering productivity gains for large enterprises. The next 18 to 24 months are expected to witness increased adoption of AI services by large enterprises seeking to leverage its benefits. Vertical software providers with access to specialized data assets are well-positioned to bring innovative services to the market and strengthen their positioning.
AI’s Impact Across Various Sectors:
- Web3 Impact: AI plays a significant role in the development of Web3, particularly in data sciences. Startups are using AI to analyze expanded data sets more precisely and quickly. With Web3 operating on the blockchain, AI is employed to track and analyze data through the blockchain, enhancing its impact on technology and the internet.
- Generative AI as a Megatrend: Generative AI, defined as AI engineering creating content in creative areas like writing, design, painting, illustration, and software coding, is considered a megatrend. Apps like ChatGPT, Lensa, and Copy.ai are changing creative processes, influencing industries through AI-generated content.
- Health Care and Medicine: AI serves as a powerful force in health care, acting as a diagnostic tool to evaluate patients’ health history. Care specialists leverage AI to assist doctors, nurses, surgeons, and clinicians, expanding client and patient interactions. AI’s growth is expected to enhance diagnostic capabilities and enable medical care specialists to focus on improving patient outcomes.
- AI in the Food Sector: The food sector is becoming a frontier for AI, with applications ranging from on-farm solutions to the broader food system and service industry. Robotics and AI contribute to improving the cost and access to healthy food, making it available 24/7 in various locations, including rest stops, hospitals, and college campuses. AI and robotics enable the delivery of healthy, fresh, affordable, and personalized food options through self-contained and fully autonomous kiosks.
AI’s influence spans diverse sectors, driving innovation and transformative changes in technology, creativity, healthcare, and the food industry.
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AI Stocks and Funds
For investors immersing themselves in the AI sector, the prospect is likely both exhilarating and daunting.
That said, the opportunity for portfolio growth and value is there for savvy investors.
“Without a doubt, AI is going to restructure the economic order of our entire society,” said Chon Tang, founding partner at Silicon Valley-based Berkeley SkyDeck Fund. “All investors should be looking for companies that are aggressively leveraging these trends while avoiding the companies that are about to be replaced entirely.”
Which AI-based stocks and funds offer the most potential opportunity going forward? These stocks and funds fit the bill:
AI-Based Stocks
Alphabet Inc. (GOOG, GOOGL). Google has officially waded into the AI chatbot market with its rollout of Bard AI, its own artificial intelligence-based chatbot offering. Bard AI is expected to be a direct competitor to Microsoft’s ChatGPT.
The internet search titan views Bard AI as “a complementary experience to Google Search,” the company stated in the rollout. All a user has to do is ask Bard a query (i.e., “Who’s the best baseball hitter ever?”) and Bard will not only provide a direct answer, the AI-powered app steers the user to Google’s search engine for more data and visuals.
Google has also announced that high-end generative AI helpers will be included in the company’s Workspace apps, with no definitive timeline in place.
According to industry sources, GOOGL is investing $300 billion in AI technologies through 2028.
Microsoft Corp. (MSFT). Microsoft shot out of the block first on the artificial intelligence front, with massive investments in its OpenAI project, which developed ChatGPT, starting in 2019. So far, MSFT has invested about $1 billion in OpenAI.
The company’s ChatGPT seems to be a launching pad for AI products and services, with new generative AI technologies rolling out that can create original text, images, video and software code, which could sink hundreds of companies in those sectors – and put more AI-generated cash in Microsoft’s pocket.
The company was also in on the concept of cloud computing and AI technology. In fact, Microsoft leadership has announced it plans on making artificial intelligence technology widely available via its Azure cloud computing platform.
Cathy Wood’s ARK Next Generation Internet ETF (ARKW) is also an early backer of MSFT and AI, with a big stake in Microsoft.
Nvidia Corp. (NVDA). This semiconductor giant is building AI-based alliances with big-name technology brands like Google and Microsoft, which use Nvidia chips to power their AI platforms.
Nvidia isn’t holding back, announcing a host of new AI-related products and services, with new chip offerings and platforms that directly meet the unique needs of generative AI producers.
CEO Jensen Huang has already said that its partnership with Google Cloud Platform is a key indicator of how seriously Nvidia takes AI cloud computing services.
“Our partnership with GCP is a very big event,” Huang said. “Every company is going to be an intelligence manufacturer… which will expand our business model,” given the company’s major investment in AI and its own infrastructure-as-a-service platform.
AI-Based Funds
For a broader perspective on AI-based investing, kick some tires on these three funds:
iShares Exponential Technologies ETF (XT). If you’re looking for a megatrend-worthy, AI-flavored exchange-traded fund that’s also immersed in other emerging technologies, then XT is for you.
The fund does take an aggressive stance, holding companies in the AI, robotics, nanotechnology, bioinformatics, and cloud computing sectors, along with a 40% stake in international companies. The fund is actively traded – a must when looking to outperform passive funds – but is diverse, with 200 companies in the fund.
XT tracks the Morningstar Exponential Technologies Index, which Morningstar describes as an index “which displace older technologies, create new markets and have the potential to create significantly positive economic benefits.”
The fund has approximately $3 billion in assets under management and is issued by BlackRock Financial Management.
Global X Robotics & Artificial Intelligence ETF (BOTZ). This fund is deeply rooted in the AI and robotics sector and holds about $1.59 billion in assets. That makes BOTZ a good play for portfolio holders who want a direct ETF path to the AI and robotics industries.
According to the fund’s prospectus, BOTZ invests “in companies that potentially stand to benefit from increased adoption and utilization of robotics and artificial intelligence.”
The fund is narrower than XT, holding only 44 companies, and is somewhat more expensive relative to its technology fund peers with an 0.68% expense ratio, or $6.80 for every $1,000 invested.
iShares Robotics and Artificial Intelligence Multisector ETF (IRBO). For a smaller and less expensive AI-themed fund, IRBO checks a lot of boxes. Total net assets stand at just $273 million, and the fund’s 0.47% expense ratio makes IRBO a more affordable buy for AI investors.
Structurally, the fund tracks the NYSE FactSet Global Robotics and Artificial Intelligence Index, which is comprised of “developed and emerging market companies that could benefit from the long-term growth and innovation in robotics technologies and artificial intelligence,” according to the prospectus.
The fund offers fairly broad diversity, investing in AI companies in 43 countries, and holds 118 companies, which places IRBO in the middle between XT and BOTZ. The fund is also not over-weighted, as no single stock accounts for more than 1.62% of the total fund.
