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Artificial intelligence (AI) is taking the world by storm and that includes the investment landscape. Chances are advisors are fielding more AI-related inquiries from clients, particularly among young, tech-savvy demographics.
The time is now for advisors to up their AI knowledge bases because this is a disruptive technology that’s garnering more and more attention. Consider the case of ChatGPT, which undoubtedly has the most brand recognition in the AI arena. A chatbot product courtesy of OPENAI – a company backed by Microsoft – ChatGPT was the fastest app in history to reach 100 million downloads.
While AI, in various forms, has been around for some time, the current area of emphasis is on generative AI. Courtesy of McKinsey, here’s an efficient way of describing generative AI to clients:
“Generative artificial intelligence (AI) describes algorithms (such as ChatGPT) that can be used to create new content, including audio, code, images, text, simulations, and videos. Recent breakthroughs in the field have the potential to drastically change the way we approach content creation.”
New AI Right Place, Right Time?
In what could amount to some impeccable timing, the Roundhill Generative AI & Technology ETF (CHAT) debuted last week. There’s always some debate about new ETFs, but consider the following statistics that could provide ballast for the CHAT thesis. By 2030, it’s expected that generative AI will drive $7 trillion in global economic output and the generative AI enterprise software could eclipse $121 billion.
“Our base scenario results in GAI enterprise software reaching $120.8 billion in a decade, fueled by rising overall software spend, deep penetration of GAI applications and growth in the global labor force. Our base scenario assumes that 10% of the global labor force utilizes GAI enterprise applications and that 50% of monthly software expenditure per employee shifts to GAI,” according to Roundhill research.
Bolstering the investment case for generative AI is that the industry isn’t solely reliant on business-to-business products. Offerings such as ChatGPT are consumer-facing, indicating there’s potential for long-term revenue stream diversification.
“The search advertising market generated $231 billion of revenue in 2021 and is forecast to grow at a 9.9% annual growth rate through 2027 to over $400 billion, according to Magna Global. If this growth rate continues longer-term, it suggests a 2033 market size of $655 billion of search advertising revenue. If 50% of search is GAI-powered in 2033, that would mean that GAI search alone is generating over $325 billion of annual advertising revenue,” adds Roundhill.
Specific to the CHAT ETF, it could be appealing to a broad swath of investors, including advisors, because while this a thematic ETF, it’s not an exotic fund. It’s largest holdings are familiar stocks, such as Nvidia (NASDAQ: NVDA), Microsoft (NASDAQ: MSFT) and Google parent Alphabet (NASDAQ: GOOG).
Generative AI Growth Trajectory Impressive
Undoubtedly, generative AI is a relatively new disruptive technology, but it’s already usurping other innovative tech in terms of mentions by the C-suite and its growth potential is simply staggering.
“Goldman Sachs estimates that the total economic value gain from the GAI productivity boost could reach $7 trillion over time while the Brookings Institute sees the possibility for an even larger boost to the global economy,” adds Roundhill.
Yes, there’s ample hype permeating the AI market, but that’s where advisors and broad approaches such as CHAT can add value for clients.