Should you be investing in AI?
Catherine Alexander
Partner
Artificial Intelligent (AI) is all over the news at the moment and is transforming the way we live and work. With AI we can enhance the speed, precision and effectiveness of tasks. It also has the ability to create new and original content using machine learning algorithms from existing information, without human intervention. However, while 'generative' AI is a big step forward, it still uses machine learning (deep learning) techniques rather than replicating human thought. In recent years AI has formed the basis for processing big data. For example, AI has powered Google Translate and Facebook’s ability to predict the responses of individuals to personalised adverts.
Many people have concerns that the speed of AI development may be outpacing regulation, leading to increased risk of negative outcomes. Concerns range from a breakdown in civilisation, to the replacement of jobs through automation. In terms of jobs and employment, while some repetitive tasks that can be AI-automated may go (as we have seen historically with improvements in technology), other jobs could be enhanced by AI, particularly in the creative industry and healthcare.
Fund Managers have been looking at AI for some time, and considering the industry expectations and valuations in regard to placement within specific funds. There is a long value chain (a series of consecutive steps that go into the creation of a finished product) from basic hardware components to specialised software chatbots to pick from. Another key consideration is a company’s level of exposure, e.g., larger global enterprises like Microsoft are well positioned to capture opportunities in the technology. In terms of investment, fund managers will be looking at:
Exposure
Relevance
Enthusiasm
Geo-political trends
Competition
Regulation
AI is an exciting area of technological development that promises years of growth ahead. Semiconductor companies are key beneficiaries of AI’s demand for power because AI chips are highly specialised, optimised to cope with processing large amounts of data and running complex algorithms. For investors, there are potentially very attractive returns on offer. But investors should be careful around valuations - if a particular company is over-valued, this could lead to relative underperformance over time.
You can invest in AI in a number of ways, some of the most popular include:
Buying AI-focused Exchange Traded Funds (ETFs) on the stock exchange.
Selecting funds within your portfolio which invest in companies that are leaders in AI technology e.g., Microsoft, Google and Amazon.
Invest in Venture Capital Funds (VTFs). These comprise startups and new companies that development innovative technologies.
As with all investments there are also risks:
Changes in investor sentiment leading to market volatility.
Current limited regulation which means that it is difficult to accurately assess risks.
High levels of competition among AI companies which mean that the profitability of companies can shift rapidly.
If you are new to investing or want to explore your options for investing in AI further, it’s always recommended to seek financial advice first. Please do contact us and we would be happy to talk through your options and help guide you to the right solution.
This article isn’t personal advice. If you’re not sure whether a course of action is right for you, ask for financial advice. All investments can fall as well as rise in value, so you could get back less than you invest.
