Why Investing in AI Isn’t Easy

So far only a few investment avenues directly benefit from artificial intelligence technologies.

Jakir Hossain 28 February, 2023 | 4:55AM
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As is often the case, the emergence of a hot technology has investors scrambling to figure out how they can get in on the action.

Artificial intelligence is back in the headlines after OpenAI released ChatGPT for public testing, giving people the first real taste of a technology that could transform the world.

Yet, despite the dramatic headlines, it may be too soon to start viewing AI as the next growth catalyst for companies. For the typical investor, it means that putting money to work directly into AI stocks isn’t as simple as it might seem.

Popular AI Stocks

There’s no question that major tech firms have for years been bulking up their investments in AI. Well-known AI champions include Apple AAPL, Microsoft MSFT, and Google’s parent company, Alphabet GOOGL. Both Adobe ADBE and Salesforce.com CRM have integrated AI into products, and some already use it to remain competitive, such as those in the cybersecurity space like Fortinet FTNT and CrowdStrike CRWD.

The issue for investors, Morningstar analysts say, is that in most of these cases, AI has yet to fully surface as a major new revenue opportunity. They point to only one concrete area in the market today where there’s money to be made from AI, and that’s in semiconductor companies such as Nvidia NVDA.

Still, the AI arms race may only be getting started, say Morningstar analysts. While offerings like ChatGPT have certainly captured people’s attention, it’s not yet life-changing. “We all keep waiting for really advanced AI that is going to blow our minds, and I think we’re still on the cusp of that,” says Dan Romanoff, senior equity analyst at Morningstar.

Romanoff says that while products like Bard AI and ChatGPT are a more advanced version of AI than the general public is used to, it’s not too different from the basic forms of AI consumers have been able to interact with over the past decade, such as Siri or Alexa, or even just basic search engines.

“I think we’re just warming up and maybe entering the first inning now,” when it comes to AI, says Romanoff.

What Exactly is Artificial Intelligence?

Editor’s Note: The answer to this question is taken from a conversation with ChatGPT.

Artificial Intelligence (AI) refers to the development of computer systems that can perform tasks that typically require human intelligence, such as visual perception, speech recognition, decision-making, and natural language processing. The key feature of AI is the ability to learn from data, recognize patterns, and make predictions or decisions based on that learning.

AI encompasses various technologies, including machine learning, deep learning, natural language processing, and computer vision. AI has numerous applications in a wide range of industries, from healthcare and finance to manufacturing and transportation. It is used to develop products and services that can improve efficiency, accuracy, and productivity, as well as to create new opportunities for innovation and growth.

Companies are Investing in AI to Enhance Products

Even as companies look to adopt AI, it may not translate into improvements in revenue or earnings just yet. “I don’t know that there’s a big revenue opportunity immediately available for anyone,” Romanoff says.

“AI is being used as a feature to make existing products more compelling,” he says. However, “It’s still not a silver bullet. You have to first offer a compelling product. Then if you layer in features over time, such as powerful AI, yes it will make the solution more attractive.”

 

 

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
Advanced Micro Devices Inc176.52 USD-2.94Rating
ASML Holding NV ADR933.25 USD-1.95Rating
Intel Corp42.99 USD0.02Rating
NVIDIA Corp788.17 USD0.36Rating

About Author

Jakir Hossain  Data Journalist for Morningstar

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