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These are halcyon days for artificial intelligence (AI) – the technology that enables computers to think like humans and perform other people-based tasks.
Due to increased mainstream and financial media attention paid to AI and the recent headlines commanded by Nvidia (NASDAQ: NVDA), it’s reasonable to surmise that client interest in this disruptive technology is at an all-time high. Chances are that will increase with time because the AI investment thesis is still in its early innings.
When it comes to accessing the AI boom, advisors have options, including single stocks and funds. The latter includes active and passive structures and exchange traded funds. Within the realm of AI ETFs, there are dedicated AI funds and “AI-adjacent” products, which include sector and industry funds with leverage to the AI theme.
Depending upon a client’s risk tolerance and investment objectives, either approach carries validity. The point is with the AI investment thesis just scratching its surface, the long-term case for the related ETFs, both adjacent and dedicated, is growing.
Consider the Case of ChatGPT
Advisors and clients alike have likely heard at least a little something about ChatGPT. Today, that’s arguably the most recognized iteration of generative AI – the form of AI that creates audio, visual and written content and the like. Generative AI is an investment thesis unto itself and one that underpins broader investable AI concepts.
“Chatbots like ChatGPT are considered ‘generative-AI’ because of their ability to generate unique content, drawing from large amounts of data,” according to First Trust research. “Various generativeAI applications can create text, images, audio, and video. After the blockbuster launch of ChatGPT, Microsoft announced a $10 billion investment in OpenAI and integration of the technology with its own search engine, Bing.3 Similarly, Google parent Alphabet has introduced Bard, its own effort to integrate generative-AI to streamline and enhance internet search, even including conversation AI features.”
Alone, ChatGPT’s ability to create prose and pictures is noteworthy, but it’s also worth noting that there potential applications of generative AI are expansive. Looked at another way, the more situations in which generative AI becomes relevant, the more solidified the AI investment thesis becomes.
“Other subfields of artificial intelligence, such as deep learning, also offer intriguing propositions. Deep learning algorithms can process vast amounts of unstructured data with limited parameters set by human experts,” adds First Trust. “As a result, deep learning can produce significant new insights and information. For example, for decades scientists struggled to understand the 3-dimensional structure of proteins, which can be a key input for understanding diseases and for developing new drugs. By training Google’s DeepMind AI with experimentally derived data about proteins, a project known as AlphaFold recently claimed to have predicted the 3D structure of over 200 million proteins, nearly every protein known to science.”
Rise of Robotics
Advisors and clients alike have likely heard plenty about the “rise of the robots” – an AI theme that has many blue and white collar workers nervous about the futures of their jobs.
Indeed, the aim of robotics is to enhance efficiencies and, thus profits. So the concern is credible as are the investment implications because AI and robotics have the potential to transform a slew of industries over the long-term.
“The net result of these factors was a resurgence in orders for industrial robots in 2022. North American companies spent a record $2.4 billion on robotics last year, an 18% increase over 2021, with automakers accounting for a significant chunk of the new orders due to retooling for electric vehicle production,” concludes First Trust. “We believe these trends may be durable, pushing new orders for advanced robotics even higher in the years ahead.”