Page 29 - Investment Advisor July/August 2023

into our everyday lives. some 44% of businesses are cur- tunity for investors to bet on AI. Companies positioned at the
rently working to incorporate AI into their existing applica- intersection of those industries and AI include battery manu-
tions and processes, according to the 2022 IBM global AI facturer sEs AI and Argo AI, which builds the infrastructure
Adoption Index. necessary for self-driving cars.
As the use cases for artificial intelligence continue to For investors without deep tech expertise, it may be difficult
expand, the technology itself will improve as well. While to differentiate among the many AI startups vying for space.
ChatgpT, Bard and others right now are prone to factual errors, Building AI is a cash-intensive endeavor , so it’s likely that
it’s likely that developers will find ways to make the technology many startups will either simply go out of business or find
more reliable. themselves acquired by larger firms.
“ChatgpT is just one manifestation of artificial intelligence, In addition, many AI startups aren’t even open to retail
but it has the cool factor,” loukas says. “But when you start investors. About a third of generative AI investments have
looking at investments, you have to separate the buzz from the not yet raised any equity funding, and more than half are still
business model.” in series A, according to an analysis by CBInsights. Retail
Investing in AI can take a lot of different forms, some more investors can’t directly purchase OpenAI stock, for example,
direct than others. In addition to focusing on companies build- because it remains a private company.
ing AI, investors might consider allocating to companies that
may not be AI-centric but whose business models will likely Where to start
benefit from advances in AI technology. As with any investment, it’s important for investors to do their
Other ways to invest in the coming AI boom include allocating due diligence to make sure they have researched a company
funds to adjacent industries, such as companies that specialize and its competitors before purchasing shares in it. As such,
in cybersecurity, data processing or chip manufacturing, loukas financial advisors should be prepared to field questions from
says, noting that AI needs all three in order to continue to grow. clients in this regard.
To that end, Jacob says that he’s looking at companies While it’s not necessary to have the deepest understanding
like Cloudflare, which specializes in edge computing, and of the technology that powers AI, they should have a basic
MongoDB, a developer database platform, and companies in understanding of the business itself and how it plans to dif-
the Internet of Things (IoT) space as having more upside than ferentiate itself — and ultimately generate profits — in an
pure-play AI companies. extremely expensive, crowded and competitive space.
Beyond NvIDIA, there aren’t many public companies Joe Quinlan, managing director and head of Market strategy
focused exclusively on artificial intelligence, but investment for the Chief Investment Office at Bank of America private
in any of the largest technology companies right now is a bet Bank, likens the current investing environment to the early
on AI. In addition to Microsoft and google, companies like days of dotcom investing. some young companies, such as
Amazon, Apple and IBM are all working hard to improve their Amazon, grew into powerhouses during that era, while many
proprietary AI technology and put it to use improving their more perished in the subsequent bust.
products and services. “[There were] a lot of companies back then with no earnings
“Really, any major internet company has put resources and a great marketing story, but they never came out the other
behind this, and that’s where the most innovation is happen- side,” Quinlan says. “We know we are on the cusp of new inno-
ing,” Jacob says. “But the question is how much is their devel- vation right now, and venture capitalists are throwing money
opment of AI going to move the needle in terms of enhancing at it. That is how we create great companies, but if you see a
returns? That’s part of the challenge.” great story with no earnings, be careful.”
Despite the recent turmoil in the industry, such companies Quinlan says that while the pace of innovation is fast, it also
also remain flush with cash and are likely to acquire startups may not be as fast as some investors expect when it comes to
if they believe that the smaller firms have intellectual property generating returns. “We are accelerating,” he explains. “But we
or tech that could bolster their business. large companies also are talking years, not quarters.”
have the human capital and deep pockets necessary to quickly When it comes to talking to your clients about investing in
scale the technology. AI, it’s important to help them understand that, while this is a
Investors more interested in small- and mid-cap AI stocks potentially transformative technology, the industry is also in
might take a look at companies like C3.ai, an enterprise AI devel- its very early days. That said, there are many opportunities,
opment platform; or BigBear.ai, an intelligence analysis firm. especially for those willing to look beyond simple pure-play
Electric and self-driving vehicles may also offer an oppor- AI investments. —Beth Braverman

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