The growing interest and development in Artificial Intelligence technology is causing investors to start assessing their portfolios through a new lens, or rather, a new chatbot. But what really is AI technology, and why should you be looking to include it in your portfolios?
Artificial Intelligence (AI) refers to the development of computer systems or machines that can perform tasks that would typically require human intelligence. AI aims to simulate human cognitive abilities, such as learning, reasoning, problem-solving, perception and decision-making. These programs or machines are designed to analyse large amounts of data, recognise patterns, make predictions, and take actions based on the information they process.
AI is a powerful tool that is already being utilised for a wide range of applications across industries and sectors. For example, it is used in speech recognition systems, virtual assistants like Siri or Alexa, recommendation algorithms in e-commerce platforms, autonomous vehicles, medical diagnosis systems, financial analysis and much more. The goal of AI is to enhance human productivity, provide innovative solutions to complex problems, and improve efficiency and accuracy in various domains.
The first major development in consumer-led AI applications was via OpenAI’s chatbot, ChatGPT, a language-based model which can generate coherent and contextually relevant responses to any prompt made by the user. An example of what ChatGPT can do has been evidenced above, as the majority of the first two paragraphs was derived from the chatbot’s answer to, “What is Artificial Intelligence?” While this is a very simplified example, the results really are quite amazing, and this sentiment was echoed by users worldwide, leading to a surge of interest in AI and its potential applications from individuals to industries.
While many companies and organisations have been working on AI technology for years now, the release of ChatGPT to the public in November 2022 sparked the race to integrate AI technology into consumer products and business operations. As the primary endorser of OpenAI, Microsoft could be seen to have the first mover advantage with regards to the integration of language-based AI technology into its Bing search engine and Microsoft Office product line. With that being said, other tech companies have been quick to respond; Alphabet, Google’s parent company, recently announced similar developments to its product line which included the introduction of its own chatbot, Bard.
From an investment perspective AI technology has, and continues to produce, disruptive technology capable of providing significant efficiency improvements and competitive advantages to companies. As such, investors have now begun assessing the technological landscape through a new lens as the development of AI is expected to be an exponential megatrend that has already resulted in an explosion of investment in companies seeking to develop and/or adopt AI technology. While larger end-user product providers with significant capital like Microsoft and Alphabet are clear beneficiaries of this, the somewhat less obvious impact is the growth for upstream producers of the hardware and software required to power AI development. Examples include the recently well-known computer chip and software developer NVIDIA and the lesser-known semiconductor manufacturing equipment provider ASML. Both companies are instrumental to the development of new technology infrastructures. NVIDIA continues to develop the most advanced graphics processing units that are required to power the increasingly complex AI programs, while ASML is the dominant provider of lithography systems needed by manufacturers to produce computer chips.
Since its inception, the Cutcher & Neale International Shares Model has maintained a central portfolio theme around new technology. The Model Portfolio has held all of the above companies for a number of years now and has benefitted from the rapid growth in AI interest and investment. At the time this article was published, Microsoft (38.8%), Alphabet (40.5%), NVIDIA (174.5%) and ASML (36.3%) have all produced positive abnormal returns for investors this calendar year-to-date.
If you want to learn more about your investment opportunities or how you can make the most of the growing interest being seen in AI and tech, get in touch with our experienced Investment Advisors.