Artificial Intelligence (AI) is set to be the next tech investing theme for 2023, after the pandemic years saw Web3, crypto, and the Metaverse as the key buzzwords. Of course, all three are on the backburner as the days of ultraloose monetary policy have ended.
But unlike these other three themes, AI is already in use across a wide variety of real-world applications, including in entertainment, social media, art, retail, security, sport analytics, manufacturing, self-driving cars, healthcare, and warehousing alongside dozens of other sectors.
Every Netflix recommendation, every Tesco Clubcard purchase, and every football match is analysed ever more relentlessly in order to provide more and better data. And while consumers have always understood — even peripherally — that AI was taking over more and more of the heavy lifting; the sector’s investment catalyst has finally arrived.
This is of course ChatGPT, the OpenAI-developed chatbot which garnered over 1 million users in just five days. It took Facebook 10 months, and Netflix three and a half years to hit the same milestone.
Taking the world by storm, it now boasts over 100 million users, and investors are now considering whether the innovation could make entire careers in areas such as copywriting, accounting, personal training, and even software development entirely redundant.
Whisper it, but some even believe ChatGPT could be instrumental in taking on Google’s dominance in the internet search space.
If this sounds fanciful — and there’s been no shortage of fanciful tech-related claims in the recent past — consider both the pace of technological change over the past 50 years, the hundreds of once vibrant and now abandoned career paths, and the fact that Google itself usurped Yahoo’s search crown.
As previously mentioned, interest rates are rising, and quantitative easing appears all but over for the foreseeable. AI development is exceptionally expensive, and for every ChatGPT breakthrough, there are hundreds of costly failures. Therefore, the best AI stocks are predominantly the larger blue chips — which also helps to diversify any investment in the event that their AI projects fail.
Best AI stocks to watch
Microsoft is the original global computing power, so it makes sense that the $1.9 trillion dollar US behemoth tops the list of the best AI stocks to watch. The company already had a strong relationship with OpenAI prior to the ChatGPT launch, and is now investing $10 billion into the company.
This will be a symbiotic relationship — Microsoft will allow OpenAi access to its cloud centres to increase ChatGPT’s computing power, while native search engine Bing will slowly start to incorporate the chatbot into its functions in an attempt to steal Google market share.
Nobody expects Google parent Alphabet to rest on its laurels, despite its current position holding 84% of the global search market share. Despite recently laying off thousands of employees, it’s launched its own rival — Bard — only to generate an embarrassing mistake at launch.
The chatbot runs on Google’s LaMDA programming, which has been in development since 2021. While there have been accusations of rushing Bard out to compete with ChatGPT, the trillion-dollar company should soon smooth out the issues.
It’s worth noting that AI is already used across many of Google’s current functions. And it’s got at least two more AI-focused projects; its coding-focused Generative Language API, and DeepMind which it acquired in 2014.
Tesla is the original EV trailblazer, and despite the legal and media troubles of CEO Elon Musk, its advancements in artificial intelligence could see the auto company rise once again to the giddy highs of late 2021.
Fully autonomous driving is the long-term goal, with the company planning to launch a robot taxi service soon. It’s also developing Optimus — a humanoid robot which Musk thinks could become more valuable than Tesla’s auto operations in time.
Baidu is China’s version of Google, responsible for over 75% of the country’s search market. Like Google, it has a growing cloud business, but it also wants to encroach on Tesla’s territory, with plans to develop the world’s largest autonomous ride-hailing area. The company is already operating this service in 10 Chinese cities, but it’s likewise worth noting the regulatory risks associated with Chinese platform stocks.
Baidu is also developing its answer to ChatGPT and Bard, codenamed ‘Ernie Bot.’ With a planned March release, there are now three horses in the race for AI-powered internet search market share.
Nvidia is well-known as one of the world’s most valuable chipmakers, used in electronics ranging from smartphones, to cars, to high-end computing.
But their most advanced deep learning chips could make the NASDAQ company undervalued. They’re already in use at clients such as Alphabet and Facebook owner Meta to power both internal and user facing AI applications.
As AI becomes ever more mainstream, demand for these chips could surge, and importantly, there is a high barrier to entry — Nvidia has a wide economic moat surrounding its market position.
Far less well-known, and with a comparatively tiny market cap, C3.ai is in the growth phase of its development. The $2.4 billion company offers customised enterprise AI applications to multiple S&P 500 clients in addition to public sector customers including the US Department of Defence.
Up 95% year-to-date, there could be much further for this company to run as it hits the mainstream investing consciousness.