3 smart ways to invest in the AI revolution

ARTIFICIAL intelligence (AI) is defined as the ability of a digital computer or computer-controlled robot to perform tasks that are commonly associated with intelligent beings.

AI has been around in some form since the 1940s. The first invention was a simple programmable digital computer but progress from there has been rapid. The latest breakthrough is ‘generative’ AI that can produce apparently brand-new text, images, videos, and audio.

In 2022, the global artificial intelligence (AI) market size was valued at $136.5bn and it’s projected to grow by 37.3% from 2023 to 2030¹.

That growth potential has got investors excited but establishing exactly how to gain from AI is not straightforward. There have been plenty of examples from the past of new technologies which have been transformational (Tom Stevenson explores the lessons from history here). But they’ve also proved dead ends for investors because it has been impossible to see in advance which companies will succeed and which will fall by the wayside.

The rise of ChatGPT - and some potential rivals?

This year has seen the emergence of ChatGPT, a powerful AI chatbot created by San Francisco tech company OpenAI. Its ability to create high-quality text with minimal human input² has the potential to revolutionise chatbots, language translation and content creation.

The results are impressive, but many worry about their potential to render many human-filled occupations redundant. According to Cliff Jurkiewicz, vice president of global strategy for Phenom, a global HR tech firm, generative AI tools should be viewed as a ‘co-pilot’³.

“Organisations should adopt a balanced approach to implementing AI by combining the strength of the technology with human intuition, expertise, and judgment — keep humans in the loop.”

For ordinary investors, there is no direct way to invest in ChatGPT because OpenAI is not a publicly listed company. But there are ways to get some exposure to ChatGPT - and rival AI technologies - indirectly. Microsoft - the shares of which you can buy - has invested in OpenAI and now incorporates ChatGPT into its Bing search engine.

And ChatGPT isn’t the only AI out there. Google-owner Alphabet, Tesla and Amazon are all working on their own AI software, so buying shares in them also give exposure to their future AI projects.

The reality is that generative AI is in its infancy and much development is still to take place. Today’s leaders may not be the eventual winners so spreading investments broadly across companies with the potential to exploit new developments - rather than trying to pick the winner now - makes sense.

Investing in the industries that support AI

Instead of investing directly in AI-centric firms like OpenAI or its competitors, investors could invest in the hardware that is required to power AI.

Chips are a key ingredient in creating AI and investors are already flocking to companies that create them. US chipmaker Nvidia recently hit $1trn in valuation after its shares grew more than 100% in just one year. It now sits alongside household names like Google or Amazon as being one of the largest companies in the world.

Its H100 chip, one of the most powerful processors Nvidia has ever built began manufacturing at mass scale just a few weeks before ChatGPT was launched⁴. That was extremely good timing for the company and its investors - but anyone hoping to get on board now faces buying at an astronomical valuation.

Our Select 50 includes two funds investing in Nvidia including the Brown Advisory US Sustainable Growth Fund and the Rathbone Global Opportunities Fund.

But just as there are alternatives to ChatGPT, there are alternatives to Nvidia. Dell Technologies, Cisco Systems, Microchip Technology and Analog Devices are all companies operating in the semi-conductor space.

Big pharma is another way in

It’s not just tech companies that stand to benefit from AI. Pharmaceutical companies are also harnessing its power.

Since AI has the power to process immense amounts of data, it could change the way pharmaceutical companies design new medicines.

Consultancy McKinsey estimates there are nearly 270 companies working in AI-driven drug discovery⁵. Pharma giants like AstraZeneca have not only expanded their contracts with AI firms, but they’re also investing internally.

Our Select 50 includes two funds that feature AstraZeneca in their portfolios including the FTF Martin Currie UK Equity Income Fund and the Liontrust UK Growth Fund.

Investors may well opt for pharma companies investing in AI as they have far greater resilience than a small biotech company who face more risk. Last year, for example, a London-based medical-technology firm that specialised in AI-developed drugs collapsed - citing a lack of funding.

Sources

¹ Grand View Research, 2 June 2023
² Why Chat GPT is so Popular: A Comprehensive Overview - A Blog by DP Vishwakarma
³ Forbes, 25 April 2023
⁴ AI gold rush: Nvidia joins the trillion-dollar club (msn.com)
⁵ Politico, 8 March 2023  

Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates.  Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. Select 50 is not a personal recommendation to buy or sell a fund. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.