Investors looking for trends to bolster solid portfolio decisions can expand their horizons and refocus on so-called megatrends.
For investment purposes, megatrends represent large-scale societal changes that not only power global change, but can fuel investment growth, too. Megatrends can help make sense of volatile and unpredictable markets, placing the ebb and flow of the tides within the larger context of a change in the sea.
Megatrends can also transcend the day-to-day fluctuations of the market and provide a long runway of growth for the right technology, industry or sector to ultimately change the investment landscape around it.
“What distinguishes a megatrend is that it’s driven by forces so powerful — and so enduring — that the world is never quite the same,” notes Vijay Chandar, head of thematic investing at Morgan Stanley Wealth Management.
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The Golden Age of Artificial Intelligence
Exhibit A in the global megatrends arena is technological innovation, particularly artificial intelligence, or AI, and its impact on critical technology sectors like robotics, machine learning and automation.
That’s exactly why so much cash is flowing into the AI sector.
Over the past 10 years, AI has comprised 10% of all global venture funding dollars, according to IDC. Overall, $257 billion dollars has rolled into the AI marketplace. IDC expects business investment in AI to rise by $500 billion this year.
“We’re truly entering the golden period of AI,” says Tejas Dessai, research analyst at Global X ETFs. “Although AI systems have been around for decades, the current generation of large language models are clearly more potent, faster and are being designed keeping in mind tangible applications and everyday end-users.”
New AI models, particularly GPT-4, or generative pre-trained transformer 4, should spur a massive innovation cycle downstream, forcing other public and private enterprises to invest in the space aggressively.
“We’ve already seen strong conviction from big tech giants like Microsoft and Google, as well as from the VC community to pursue innovation in this space,” Dessai says. “Other non-technology enterprises will likely be forced to take this paradigm shift more seriously — resulting in some serious investments, mergers and acquisitions, and information technology consumption.”
Big Tech is in a particularly exciting position to help enterprises get onboarded into the AI world.
“We’re already seeing an abundance of low-hanging fruit in terms of the products these companies (cloud computing players, social media platforms, digital media players) can bring to the market to capture share, accelerate growth in key verticals and drive engagement,” Dessai notes.
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Key AI Trends Worth Watching
Despite the rapid rise in media attention, AI is not exactly a new phenomenon.
The term “AI” was first coined in the mid-1950s, by engineers at Bell Labs and IBM in a technology proposal titled “A Proposal for the Dartmouth Summer Research Project On Artificial Intelligence.”
The original concept for AI emphasized the need for humans to take a “break” and allow technology to take over in running society. With no need for sleep, no hunger that required food and drink, and no requirement to take time off to recharge the batteries, AI was conceived as the ultimate knowledge enhancer that could take over for humans at rest.
With the development of neural networks in the ’60s and ’70s, and the subsequent ascent of machine learning (in the last 40 years) and deep learning (a relatively new phase in AI’s development), artificial intelligence has finally cemented itself on the global stage.
Now in full commercial development and usage by consumers and businesses, “smarter and faster” AI is embedding itself in several critical fields, all of which warrant the attention of market investors.
“Without a doubt, AI is going to restructure the economic order of our entire society,” said Chon Tang, founding partner at Silicon Valley-based Berkeley SkyDeck Fund.
These sectors are at the top of the list:
Enterprise AI. Businesses worldwide are pouring robust resources into enterprise AI, using the technology to handle everyday chores like responding immediately to customer service calls to enabling commuters to complete work projects (i.e., “Hey, Alexa”) on the fly and in real-time.
In that regard, AI is proving to be an efficient and affordable problem solver for global commerce and should continue to do so as new iterations hit the market.
“We believe large enterprises could end up as voracious consumers of AI services over the next 18 to 24 months given the obvious productivity gains that can be harnessed,” Dessai says. “Vertical software providers who have access to specialized data assets will find themselves in a very attractive position to bring services to market and solidify their positioning.”
Additionally, Dessai also expects AI enterprise research to be enthusiastically funded over the next few years.
“Models will continue to become faster, cheaper, and less computationally intensive with time — which could further bolster the possibility of even having these models run on mobile and IoT devices, smartphones, and more, further fueling innovation,” he says. “Beyond the obvious opportunities we see for Big Tech, Hyperscalers, Vertical Software Players, and Data Management Apps, we’re incredibly bullish on the demand this wave of AI innovation could drive for data center capacity, storage, and networking components — and the entire value chain.”
AI development. Artificial intelligence can also be deployed by scientists, engineers and data analysts to design, test and train new products and services for commercial use.
This not only helps companies have time to bring products to market, it also enables them to harness AI to consistently add features to existing AI tools, once again in real-time and at a low financial and human resources cost.
Web3. The data sciences are also significantly impacted by AI, as a wave of newly-funded technology startups are creating faster and more powerful ways for companies to analyze expanded data sets more precisely and more quickly than existing data algorithms. As Web3 is run on the blockchain, AI can be utilized to track and analyze data through the blockchain, thus giving Web3 a massive impact on technology and on the internet.
Generative AI. In a word, there’s a decent case to be made that generative AI is a megatrend all its own.
The term “generative AI” is defined as AI engineering that creates content in key private and commercial creative areas like writing, design, painting and illustration, and software coding and design. Apps like ChatGPT, Lensa and Copy.ai are among the most pervasive — but not the only — AI creative apps that are changing the world one keystroke at a time.
Health care and medicine. Artificial intelligence is also emerging as a powerful force in health care, with care specialists leveraging AI as a diagnostic tool to evaluate a patient’s health history, essentially acting as a medical care aide to doctors, nurses, surgeons and clinicians.
As AI reaches new levels of growth, industry analysts expect to expand client and patient interactions and, as far as diagnostic capabilities go, relieve medical care specialists from that task, allowing them to focus their attention on better patient outcomes.
The food sector. Healthy foods will also emerge out of the AI revolution, further improving people’s health and wellness.
“Food is the next frontier for AI,” says Vipin Jain, chief executive officer at Blendid, in Santa Clara, California. “That means not just on-farm applications and solutions, but in the food system and food service industry as a whole.”
According to Jain, the use cases of robotics and AI are expanding to help improve the cost of, and access to, healthy food that can now be available 24/7 in places it wasn’t previously.
“That means from rest stops to hospitals, college campuses and more,” Jain said. “As consumers demand healthy, fresh, affordable and personalized options that they can order from their phones at all times of day, AI and robotics can deliver this in self-contained and fully autonomous kiosks that have a very small footprint and work well in high-trafficked places.”
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AI Stocks and Funds
For investors immersing themselves in the AI sector, the prospect is likely both exhilarating and daunting.
That said, the opportunity for portfolio growth and value is there for savvy investors.
“Without a doubt, AI is going to restructure the economic order of our entire society,” said Chon Tang, founding partner at Silicon Valley-based Berkeley SkyDeck Fund. “All investors should be looking for companies that are aggressively leveraging these trends while avoiding the companies that are about to be replaced entirely.”
“You wouldn’t want to own shares in the Pony Express after Ford set up their first assembly line,” Tang noted.
Which AI-based stocks and funds offer the most potential opportunity going forward? These stocks and funds fit the bill:
AI-Based Stocks
Alphabet Inc. (GOOG, GOOGL). Google has officially waded into the AI chatbot market with its rollout of Bard AI, its own artificial intelligence-based chatbot offering. Bard AI is expected to be a direct competitor to Microsoft’s ChatGPT.
The internet search titan views Bard AI as “a complementary experience to Google Search,” the company stated in the rollout. All a user has to do is ask Bard a query (i.e., “Who’s the best baseball hitter ever?”) and Bard will not only provide a direct answer, the AI-powered app steers the user to Google’s search engine for more data and visuals.
Google has also announced that high-end generative AI helpers will be included in the company’s Workspace apps, with no definitive timeline in place.
According to industry sources, GOOGL is investing $300 billion in AI technologies through 2028.
Microsoft Corp. (MSFT). Microsoft shot out of the block first on the artificial intelligence front, with massive investments in its OpenAI project, which developed ChatGPT, starting in 2019. So far, MSFT has invested about $1 billion in OpenAI.
The company’s ChatGPT seems to be a launching pad for AI products and services, with new generative AI technologies rolling out that can create original text, images, video and software code, which could sink hundreds of companies in those sectors — and put more AI-generated cash in Microsoft’s pocket.
The company was also in on the concept of cloud computing and AI technology. In fact, Microsoft leadership has announced it plans on making artificial intelligence technology widely available via its Azure cloud computing platform.
Cathy Wood’s ARK Next Generation Internet ETF (ARKW) is also an early backer of MSFT and AI, with a big stake in Microsoft.
Nvidia Corp. (NVDA). This semiconductor giant is building AI-based alliances with big-name technology brands like Google and Microsoft, which use Nvidia chips to power their AI platforms.
Nvidia isn’t holding back, announcing a host of new AI-related products and services, with new chip offerings and platforms that directly meet the unique needs of generative AI producers.
CEO Jensen Huang has already said that its partnership with Google Cloud Platform is a key indicator of how seriously Nvidia takes AI cloud computing services.
“Our partnership with GCP is a very big event,” Huang said. “Every company is going to be an intelligence manufacturer… which will expand our business model,” given the company’s major investment in AI and its own infrastructure-as-a-service platform.
AI-Based Funds
For a broader perspective on AI-based investing, kick some tires on these three funds:
iShares Exponential Technologies ETF (XT). If you’re looking for a megatrend-worthy, AI-flavored exchange-traded fund that’s also immersed in other emerging technologies, then XT is for you.
The fund does take an aggressive stance, holding companies in the AI, robotics, nanotechnology, bioinformatics, and cloud computing sectors, along with a 40% stake in international companies. The fund is actively traded — a must when looking to outperform passive funds — but is diverse, with 200 companies in the fund.
XT tracks the Morningstar Exponential Technologies Index, which Morningstar describes as an index “which displace older technologies, create new markets and have the potential to create significantly positive economic benefits.”
The fund has approximately $3 billion in assets under management and is issued by BlackRock Financial Management.
Global X Robotics & Artificial Intelligence ETF (BOTZ). This fund is deeply rooted in the AI and robotics sector and holds about $1.59 billion in assets. That makes BOTZ a good play for portfolio holders who want a direct ETF path to the AI and robotics industries.
According to the fund’s prospectus, BOTZ invests “in companies that potentially stand to benefit from increased adoption and utilization of robotics and artificial intelligence.”
The fund is narrower than XT, holding only 44 companies, and is somewhat more expensive relative to its technology fund peers with an 0.68% expense ratio, or $6.80 for every $1,000 invested.
iShares Robotics and Artificial Intelligence Multisector ETF (IRBO). For a smaller and less expensive AI-themed fund, IRBO checks a lot of boxes. Total net assets stand at just $273 million, and the fund’s 0.47% expense ratio makes IRBO a more affordable buy for AI investors.
Structurally, the fund tracks the NYSE FactSet Global Robotics and Artificial Intelligence Index, which is comprised of “developed and emerging market companies that could benefit from the long-term growth and innovation in robotics technologies and artificial intelligence,” according to the prospectus.
The fund offers fairly broad diversity, investing in AI companies in 43 countries, and holds 118 companies, which places IRBO in the middle between XT and BOTZ. The fund is also not over-weighted, as no single stock accounts for more than 1.62% of the total fund.
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Megatrends: AI and Robotics originally appeared on usnews.com
