BLOG: Investing in Artificial Intelligence
Lately, clients have been asking me a lot of questions related to Artificial Intelligence, or AI, and how it could impact investing. AI has become a major topic in the media and already has a large role in our lives. It's a complicated topic of many books and articles, but I'll try to compress it into a blog post on how it can be addressed through investing. But first, let's start by defining what AI is.
Simply put, artificial intelligence is the process where machines are programmed to think, learn, and act like human beings but in a much faster and more dynamic way. A simple example would be an AI version of a chess game. The AI program would be fed the results and strategies of thousands of prior games. The program would, in turn, learn the patterns and strategies needed to win. It would then continue to practice chess games using all the winning patterns it identified until it could eventually beat human grandmasters of chess.
The potential ramifications for AI in our lives are huge — both positive and negative.
The positive impacts on society are numerous, starting with the medical discoveries and advances that could come from AI data analytics. AI could also discover solutions for climate problems, global financial problems, and tackle other issues that the human mind simply can't solve at the same speed as a powerful machine.
The negative implications from AI are unknown but potentially scary. If it were to be controlled by the wrong people there could be serious, and potentially life threatening, consequences. Some of us are old enough to remember the 1983 movie ”Wargames” in which the computers took over a simulation of global thermonuclear war.
So if AI is real and here to stay (I believe it is), how does one invest in it?
The answer, in my opinion: When there appears to be a gold rush situation, you don’t invest in the miners because it’s nearly impossible to know which ones will succeed or fail. You invest in the companies that provide picks, axes, and shovels because everyone needs those supplies, not just miners.
In the case of AI, there are countless companies that claim to be the next dominant AI application. Choosing one over the other is nearly impossible at this point and, like the dot com boom and bust in the late 1990s, many will fail. But let’s look at the picks, axes, and shovels of AI.
One of the main issues with AI is that it takes a tremendous amount of electricity to run AI datacenters. To that end, utility companies are poised to become even more important in our lives as they develop ways to provide power to the datacenters considering ours and Europe's electric grids are in serious need of updating—regardless of AI.
In addition, there’s a strong demand for semiconductors for AI applications, so chip manufacturers are a very important component. (I recommend the book “Chip War” by Chris Miller to understand how important microchip manufacturing has become in international affairs).
AI also brings with it an increased need for cybersecurity. As reliance on AI becomes even more prevalent, the threat of bad actors online increases. Cybersecurity companies will have their hands full (and, potentially, a lot of business) in support of AI.
There are many more industries that will benefit from supporting AI than I can list in a brief blog post, but I hope you get the idea: When investing for the long term, don’t buy the flashy idea. Invest in the companies that have staying power, since it meshes better with a long-term investment plan. And, as always, I recommend having a solid and collaborative plan created with a Financial Advisor.
If you have any questions or wish to discuss this further, please contact me.
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The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Investing includes risks, including fluctuating prices and loss of principal.