Three things to keep in mind when investing in Artificial Intelligence stocks
A shortfall in labour will drive the market for artificial intelligence technology to $US1 trillion by 2050, a Morgan Stanley analyst has calculated.
“By 2050, the US alone will likely face an 18-million worker shortfall,” says Scott Helfstein, senior market strategist at the investment bank.
“If the AI (or artificial intelligence) industry grows at a compound annual rate of 15.4 per cent — my current estimate — it could reach nearly $US1 trillion in revenues by 2050, based on automation replacing the projected shortfall of 18 million US workers.
“With Europe, Japan and China facing similar demographic deficits, that growth estimate is likely conservative.”
While the opportunity seems obvious, the emergence of intelligent machines (sometimes known as “the fourth industrial revolution”) is a confusing theme for investors.
There are no software makers with a general dominance in the technology and there is no “single dominant AI technology”, Morgan Stanley says.
That becomes clear for any Australian investors looking for AI stocks on the ASX.
(Scroll down for a table showing some of the ASX stocks offering exposure to AI).
A glance at our table below shows there is a wide variety of companies across many sectors that make claims on AI technology.
How to choose?
Morgan’s Scott Helfstein identifies three areas that potential AI investors should look for:
Look for companies supplying “the raw material” for core AI technologies including hardware makers and cloud data centres. Also look for companies with big databases — and the know-how to cleverly slice and dice that data.
These are software makers developing AI apps. There will be a wide variety of players across many industries.
Bigger companies with infrastructure such as cloud computing services may have an upperhand, but the potential uses for AI are so wide that “the market can likely accommodate a number of players”.
These are the companies that make use of advances in AI to do business more efficiently.
“Companies that have high labour costs tied to simple repetitive tasks (think fast food) are probably the most obvious beneficiaries of AI,” Mr Helfstein says.
Industries with high customer-service demands could benefit from advances in natural language processing and machine learning improve. (Look to Google’s recent demonstration of an AI that can make phone calls.
Here is a selection of ASX small caps that offer exposure to AI: