Investing In Artificial Intelligence

Generative AI: Consciousness Raising 

In November of 2022, Open AI, a startup, launched ChatGPT, an artificial intelligence (AI) chatbot. By January 2023, ChatGPT already had over 100 million users worldwide, and there's no sign of waning public enthusiasm. After all, who wouldn't want to interact with a bot that can fulfill your command to write an original sonnet to a loved one or a quarterly report in less time than it would take you to stare at a blank screen for ten minutes before taking a break to make yourself a snack? 

We've been hearing a lot about this new generation of bots that can create spiffy images in a jiffy, write essays, articles, and books, and consume vast amounts of data to generate original, albeit from plagiarzed sources, content based on user prompts. Some have likened this technological innovation and its potential impact on human civilization to the discovery of fire and the invention of electricity and the microchip. It's beyond the scope of this article to debate whether this will ultimately be good or bad for humanity and other life forms but massively disruptive it will be—and also full of investing opportunities. 

Brainless But Still Smarter Than You 

Everyone is talking about it, but what exactly is generative AI? 

In a (very) abbreviated form, generative AI is a type of artificial intelligence that uses machine learning to create original content in the form of text, images, video, and audio. It is a kind of neural network that, like the "meat brain" of humans and animals, draws on information from its surroundings to make decisions. Except in the case of the bot, it is scraping data from media files supplied by the internet or another source. 

Generative AI uses a form of deep learning called generative adversarial networks (GANs). A GAN is a set of two neural networks that work against each other. One neural network, called the "generator", creates new data based on its data universe while the second network, called the "discriminator", evaluates the quality of the output by providing feedback until, finally, the new content is deemed indistinguishable from the real data. When the bot receives a prompt from a human or even perhaps from another bot, it will begin to generate the desired content. The output will be limited by what the bot was trained on. (NB: the above paragraph was mostly generated by ChatGPT. In other words, I'm going to be out of a job. One estimate is AI will generate 90% of online content by 2026.) 

Disruption And Opportunity 

Expect generative AI to transform every industry over time. A recent survey by MLIV Pulse reported that AI systems are likely to replace some jobs in the financial, media, legal, technology, travel, logistics, and healthcare sectors. (So, you know, just a couple, here and there.) 

This doesn't necessarily mean millions of people will be thrown out of work, but it's likely AI-enabled bots will work alongside humans in the role of "co-pilot" to optimize output. Curiously, in the same survey, only 49% of respondents said they planned to buy stocks with exposure to generative AI. Meanwhile, among the leading tech companies, the AI arms race is on. For those investors interested in investing in potential beneficiaries of AI, here are some ideas for consideration. 

How To Invest In AI 

According to Bloomberg, during the last round of company earnings calls, terms such as "AI" and "machine learning" soared to over 200 mentions, the most since the topic surfaced in U.S. tech earnings calls in 2013. Venture capital investment in AI startups reached US$67 billion last year, according to PitchBook. 

However, except for accredited investors, family offices, and other institutional investors, regular retail investors cannot access these private companies. An easier way for them to tap into this burgeoning industry is through the large publicly-traded tech companies which are investing and partnering with these smaller firms.

Many of these familiar names, such as Microsoft, Amazon, and Alphabet, already have a huge community of users. They have the financial resources to be the first movers in this area because AI requires massive amounts of expensive computing power. These giants have the capacity to build their own proprietary data sources on their own platforms, essentially creating "data moats".

The tech mega caps are already forming important alliances with startups. For example, Microsoft invested US$10 billion in OpenAI, the creator of ChatGPT, to integrate the technology into its own services. Google recently partnered with San Francisco-based Anthropic, another startup, with a US$300 million investment. Google's cloud division is also working with other AI startups, including Cohere and C3. Amazon has formed an alliance with startup Stability AI to be its sole tech supplier. Stability AI will use AWS as its preferred cloud partner for training AI models and use the company's Trainium chip. China-based public companies such as Alibaba and Baidu are also planning ChatGPT-style AI tools.

Other AI-related companies include Nvidia, the market leader in GPUs (graphic processing units) and AI processors, which accelerate AI workloads faster than general-purpose computers. The company is rumoured to be partnering with cloud-service providers to sell companies access to its AI platform on a subscription basis (AI-as-a-service). "AI is at an inflection point, setting up for broad adoption reaching into every industry," said Nvidia CEO Jensen Huang.

Other familiar names in this sphere include Facebook/Meta, which employs its proprietary neural networks such as DeepText and DeepFace to process content on the platform and are being used to build out the MetaVerse; and Salesforce, which is using its proprietary algorithm Einstein, an AI-enabled "layer of intelligence" for developers to build apps customized to their business needs.

For ETF-oriented investors looking for a one-stop shop, there are a couple of options. WisdomTree's Artificial Intelligence and Innovation Fund (WTAI), and the Conversational AI, AI and Innovation ETF (CHAT) filed a prospectus with the Securities Exchange Commission (SEC) in February. This actively-managed fund would invest in global AI stocks specializing in conversation and innovation.

By one estimate, within the next decade, all software will be replaced by AI-enabled software. A new but fast-growing job category will be "prompt engineer", someone who creates prompts in the form of text, images and/or numbers to optimize the outlook of the AI model. Directly asking bots for investment advice is not yet a sure ticket to riches, but investing in AI companies just might be.

Rita Silvan, CIM is a finance journalist specializing in women and investing. She is the former editor-in-chief of ELLE Canada and Golden Girl Finance. Rita produces content for leading financial institutions and wealth advisors and has appeared on BNN Bloomberg, CBC Newsworld, and other media outlets. She can be reached at rita@ellesworth.ca.