What to look for when investing in Artificial Intelligence stocks
Artificial Intelligence (AI) stocks are under-valued and demand will rise as technologies such as autonomous vehicles becomes commonplace, says tech expert Marc Kennis.
AI and machine-learning are two phrases we see a lot in ASX announcement. What do they actually mean?
Artificial Intelligence (AI) is all-encompassing, for instance where a machine can read things themselves and act upon that. Machine learning is a subset of AI where programmers essentially set the parameters for what the application can do.
AI is essentially just recognising patterns in data. You can teach a computer to recognise a face in a whole bunch of data, but only in a supervised learning setting where you have to feed in a million or so photographs in order for it to learn from its mistakes.
AI is more general — the likes of C-3P0 or the Terminator where they can read things themselves and interpret data.
AI has so many application areas that are very functional – from suggestions in Spotify to things like advanced pattern recognition in security application.
Machines will reach parity with humans, to be as clever and even to have attitude like C-3P0 — but it could be anywhere between 10-20 years before that level is reached.
Even the most reputable tech gurus are split in opinion on how far development will go and whether we are building something akin to Skynet from The Terminator.
What are some ASX-listed players with exposure to AI?
BrainChip (ASX:BRN) have a good application of what AI can do – they are working on a system that mimics the human brain that they hope to have to market next year.
The chip allows for unsupervised learning where computers pick up patterns themselves. If you feed data to the chip it will pick up patterns automatically.
Bringing it down to a human context, machine learning is chips sitting in a classroom being told what to do whereas BRN’s chips are in the world picking up patterns themselves.
Open DNA (ASX:OPN) are also a pure-play AI company, which uses its technology to feed highly relevant content to consumers by looking at their previous browsing history, preferences and dislikes.
What should investors look out for when investing in AI?
At the moment in the tech space AI is reaching levels similar to that of blockchain – at the mere mention of the word share prices are going up.
What a lot of companies are doing now is tapping into capabilities such as IBM has with Watson, piggybacking on its software to reap the gains in efficiency.
It can be hard to make the distinction between real investment and just a buzzword but investors need to look at how tech companies are deploying it and whether it does really impact the business.
This is where you can make huge amounts of money if you know what to look for and are patient. AI will not play out overnight but if you look at autonomous vehicles – cars, drones, submersibles or planes – they will all need the tech.
Most tech stocks in the small and mid-cap market are under-valued, largely because it is not always apparent to investors how they will make their money.
Overseas investors have a lot more experience in tech and are better able to judge potential longer term and can attribute value rather than just revenues.
If you know what to look for, an incredible amount of value to be found. There is a big gap in valuation.
How widely applicable is AI technology across industries?
By deploying AI as a company, you can get insights you have never dreamed of. You can find out things about your clients or consumers that you could never find with just people looking at it. There are huge opportunities right across industries.
AI in conjunction with autonomous vehicles will hold the biggest upsides in the next 50 years. BrainChip have made developments in the space several years ago and found their tech was more effective than narrow AI.
What’s the outlook for ASX-listed AI stocks compared to their US counterparts?
At the moment, most true AI companies are venture capital-funded in the US, where they have a much stronger tech market and appetite for risk. The only thing is VC can be very restrictive and they often take a large amount of the companies’ equity.
Many companies are seeing the ASX as an alternative, as it is of a relatively large size and there seems to be growing appetite for risk.
Companies like Weebit Nano (ASX:WBT), 4DS Memory (ASX:4DX) and Ultracharge (ASX:UTR) have all made the move.
Marc Kennis has two decades of institutional equities research experience in the technology and telco sectors, servicing clients in the UK, Europe, North America and Australia. He is passionate about the TMT space, with interests ranging from electronics and leading-edge hardware to newly emerging content delivery models, such as OTT, as well as cyber security, Artificial Intelligence and computer gaming.
In 2016 Marc founded TMT Analytics, providing independent equities research on companies in the Tech, Media and Telco sectors.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.