ChatGPT is an Artificial Intelligence (AI) chatbot that was developed by OpenAI and upon its release in November 2022 it took the world by storm. If you've not heard of ChatGPT, it can understand natural language, generate human-like responses and engage in conversations with users. At its most basic it can give detailed answers to questions that users type onscreen. It has already been used to write poetry, pass law exams, write computer code and even come up with new business ideas and help launch them. Of course, there have been hiccups with the service such as offensive responses or inaccurate information being provided. As an aside, ChatGPT claimed that I had written a specific money book which I hadn't, for which it gave a full title and description. Not only have I not written the book it referenced but nobody else has (I checked). These so-called hallucinations are dismissed as teething problems by the creators. Either way, they don't detract from the technology's potential to disrupt entire industries and jobs from journalism to healthcare.
As exciting as ChatGPT is, it is simply a publicly visible application of Artificial Intelligence. AI (and not just ChatGPT) is rapidly changing the landscape of the business world from chatbots and virtual assistants to autonomous vehicles and predictive analytics. The potential impact of AI is being compared to other great technological revolutions in history, such as the invention of the printing press by Johannes Gutenberg in the 15th century, the industrial revolution in the 18th century and both the creation of the computer and the birth of the internet in the 20th century.
As a result, investors are keenly watching the AI space and money is already flowing into the AI theme in search of potential profit. In fact, I’ve even received emails from 80-20 Investors asking how to best play this exciting theme within their portfolios. However, one issue with many of the companies working on AI is that they are often private, meaning it's not possible to invest in their shares. OpenAI (the creator of ChatGPT) is one such example.
There is also danger that investors race to invest in almost anything that claims to be associated with developing AI. Indeed, you need only look at the rapid increase in tech start-ups that are clearly jumping on the AI bandwagon. It means that investing in AI, just like any other new theme or technology is fraught with risk. So in this article I explore how to gain exposure to companies that are at the forefront of the AI revolution within your portfolio. In theory, you could invest in the companies' shares directly but they would be risky, so I am looking at ways to increase exposure to this theme in a diversified way.
Methodology - Investment funds for AI
In order to find funds that may benefit from the rise of AI I first had to identify a number of companies that are either developing AI technology, leveraging AI in their businesses or are integral in providing the infrastructure needed for AI to operate at scale.
So below is a brief synopsis of companies that may benefit from the rise of AI. These are deliberately large companies whose shares are readily traded on global stock exchanges.
Nvidia
NVIDIA Corporation is a leading provider of graphics processing units (GPUs) that are used in a wide range of applications, including AI. NVIDIA's GPUs are optimised for deep learning, a subfield of AI that involves training machines to recognise patterns in large datasets. With the growing demand for deep learning technology, NVIDIA is well-positioned to benefit from the rise of AI.
Alphabet
Google's parent company, Alphabet Inc has been at the forefront of AI research and development for a number of years and is now scrambling to boost its AI capabilities, with the Wall Street Journal reporting that Alphabet will combine its AI Research Units Brain and DeepMind to accelerate its AI progress. Google's AI technology is already being used in a wide range of applications, including self-driving cars, healthcare, and education.
Microsoft
Microsoft has been investing heavily in AI research and development, and its Azure AI platform is one of the most advanced AI systems available. Microsoft's AI technology is being used in a wide range of applications, including virtual assistants, chatbots, and predictive analytics. Microsoft has been in partnership with OpenAI (the creators of ChatGPT) since 2019 and in January announced a further multi-billion dollar investment. Microsoft has stated that it will deploy OpenAI’s models across its consumer and enterprise products and introduce new categories of digital experiences built on OpenAI’s technology. In addition, AI technology requires a huge amount of processing and that will inevitably increase the demand for Microsoft's Azure AI platform.
Salesforce.com
Salesforce has been investing heavily in AI-powered solutions for customer relationship management (CRM). Its Einstein AI platform is one of the most advanced AI systems in the CRM space, capable of analysing vast amounts of customer data and providing personalised insights.
Alibaba
Alibaba has announced its plans to release a chatbot product called Tongyi Qianwen, similar to the AI-powered language model ChatGPT. According to the cloud computing unit of the company, the chatbot will be integrated across Alibaba's businesses in the "near future," although no specific timeline was given. However, China's Cyberspace Administration proposed new regulations that require AI chatbot providers to submit their products for security reviews before public release, which could be a headwind for any company developing AI technology in China.
Baidu
Baidu is one of the leading providers of search engine services in China and has also been investing heavily in AI research and development. Its AI technology is being used in a variety of applications, including speech recognition, natural language processing, and autonomous vehicles.
Tencent
Another Chinese tech giant that is also reported to be developing its own ChatGPT equivalent with online reports suggesting that it could be called HunyuanAide.
Amazon
Amazon has been investing heavily in AI-powered solutions, particularly in areas such as natural language processing, computer vision, and robotics. Amazon's AI technology is being used in a variety of applications, including voice-powered assistants, warehouse automation, and fraud detection. In addition, Amazon is a leading player in cloud computing and this week announced it's launching AI services through its cloud computing platform, targeting corporate customers looking to integrate AI into their businesses. This is in contrast to most other tech giants that are focused on delivering consumer focused services.
While carrying out the research for this article two other companies of note were IBM and C3.ai but it was not possible to find any unit trusts investing in either company.
Having decided upon the above 8 companies I then analysed the holdings of every unit trust available to retail investors and summarised those funds with a significant exposure to any of the stated companies. If you click on the image below you will download a larger two page pdf table. Where a square is coloured green it shows that the company is in the top 10 holdings of the fund. A white square signifies that there is no (or minimal) exposure to the relevant company. The final column shows the total percentage of the funds assets that are exposed to the 8 companies above. A final aside, there are a few unit trusts and ETFs that have AI or "artificial intelligence" in their names. Expect a lot more to launch in the future. But as with any theme you want to bring into your portfolio, look beyond the fund name and look at what the fund actually invests in.
