Technology

This Is How Investors Can Cash In On The Tech Industry’s AI Boom

The best part of investing in technology stocks is that you’re betting on the future. And today, thanks to artificial intelligence (AI) technology, the future is here and now. In fact, with AI, investors are on one of the greatest investing thresholds ever. This means almost unlimited growth potential for investors who get in on the ground floor of the top AI companies.

When it comes to future growth, few industries have the potential of AI. In 2016, the AI market was worth just under $644.0 million. In 2017, that number is expected to soar by almost 95% to $1.25 billion. By 2025, the AI market is forecast to be worth $36.82 billion; that represents an eye-watering compound annual growth rate (CAGR) of almost 57%. (Source: “Revenues from the artificial intelligence (AI) market worldwide, from 2016 to 2025,” Statista, last accessed April 24, 2017.)

AI Stocks

AI Stocks

AI’s CAGR is frothy because of the numerous ways AI shapes and will shape our lives. Once relegated to science fiction novels and episodes of Star Trek and The Jetsons (Rosie the Robot), AI has become a useful reality and grown by leaps and bounds.

But the future of AI is less exciting than a carnivorous robot. Which is good, since we are already surrounded by AI and use it on a daily basis. AI technology is used in driverless cars, healthcare, security, financial services, defense, search engines, social media, and music services.

Alphabet Inc‘s (NASDAQ:GOOG) “Google Assistant,” Apple Inc.‘s (NASDAQ:AAPL) “Siri,” Facebook Inc‘s (NASDAQ:FB) “M,” Amazon.com, Inc.’s (NASDAQ:AMZN) “Alexa,” Netflix, Inc. (NASDAQ:NFLX), and music juggernauts like Spotify and Pandora Media Inc (NYSE:P) are just a few examples of popular AI applications. And the proliferation of AI technology grows every day.

Artificial Intelligence Is in Its Infancy

AI might seem advanced, but it’s in its infancy. You can’t go more than a few minutes without interacting with a computer…but the first personal computers, which you could buy as kits, were only introduced in 1975. Investors should expect AI to revolutionize the world in the same kind of way.

In a nutshell, artificial intelligence is software that learns, analyzes, and adapts to new information. It sounds pretty simple, but it isn’t. We’re basically talking about technology that, in addition to learning, reasons, solves problems, understands complex ideas, makes decisions, and evolves like the human mind.

Again, AI is in its infancy. Seemingly basic customized viewing and listening choices from Netflix and Spotify are just two examples of AI algorithms that make our life easier. More complex examples of AI include self-driving cars and medical diagnoses. But even these could be considered a basic use of AI in a decade or two. Or less.

In 2017, AI might seem pretty complex, but AI is still in its infancy. Whether investors are aware of it or not, our lives are on the precipice of massive change. Those that want to get in on what is still the ground floor should take a look at the tech stocks that are at the forefront of the AI revolution.

AI Tech Stocks’ Profit Potential Virtually Unlimited

Before we take a look at some of the best AI stocks for 2017, it’s important to understand the different levels of AI: Narrow, General, and Super. Narrow AI specializes in one area. Narrow AI can beat a Grand Master at chess. And that’s all it can do.

The world’s top chess, checkers, scrabble, and backgammon players are all narrow AI systems. On a more personal level, narrow AI algorithms in your car send hundreds of messages back and forth per second to determine when your anti-lock brakes kick in. For now, narrow AI is pretty simple, but over the next five to 10 years, it will get better at making complex decisions, which is what will lead to a breakthrough in self-driving cars.

General AI, which is also sometimes referred to as Human-Level AI, is a computer that is as smart as a human. Suffice it to say, not even AI titans like Google or Amazon have mastered General AI. And it is next in line on the AI evolutionary tract.

Super AI is defined as intellect that is much smarter than the best human brains in every field. This could refer to a computer that is slightly smarter than us to one that is a trillion times as smart.

Do we want AI that is smarter than we are? Certainly. Do we want AI that replaces us? Of course not.

Jack Ma, the founder of Alibaba Group Holding Ltd (NYSE:BABA) has warned businesses to adapt to AI. He said that 15 years ago, he gave hundreds of speeches warning about the impact e-commerce will have on traditional brick-and-mortar businesses. But because no one knew who he was, no one listened. (Source: “Jack Ma Sees Decades of Pain as Internet Upends Old Economy,” Bloomberg, April 24, 2017.)

“Machines should only do what humans cannot,” Ma said. “Only in this way can we have the opportunities to keep machines as working partners with humans, rather than as replacements.”

Ma concedes that in 30 years, a robot will probably be on the cover of TIME magazine for CEO of the year. Which might not be so bad, as most Wall Street CEOs tend to be emotionally distant and lack any empathy; something Super AI might be able to learn. Until then, we’re stuck with fleshy CEOs that have the personality of quicksand.

Best AI Stocks for 2017 and Beyond…

Because AI is still in the cradle, the best…and only AI stocks, for now, are in the Narrow AI field. And because pure play AI companies are few and far between, and are being snapped up, the biggest AI winners will be those tech companies that already harness AI. Those interested in investing in tech stocks might want to do some thorough due diligence on the following top AI companies.

GOOG Stock Undervalued

Alphabet is already a massive brain that holds the wisdom of the world, so it makes sense that the company would be a leader in AI.

As Google CEO Sundar Pichai said in Alphabet’s 2016 annual founders’ letter, “Looking to the future, the next big step will be for the very concept of the “device” to fade away. Over time, the computer itself-whatever its form factor-will be an intelligent assistance helping you through your day. We will move from mobile first to an AI first world.” (Source: “This year’s Founders’ Letter,” Google Blog, April 28, 2016.)

To that end, Google Assistant is an intelligent personal assistant that, unlike “Google Now,” you can have a conversation with. In addition to employing some of the best AI engineers in the world, who develop AI technology you never hear about, Alphabet has also been on a buying spree, showing its commitment to becoming the leader in AI.

Since 2012, it has acquired 11 private AI companies. In 2014, it purchased DeepMind Technologies Limited for $600.0 million and most recently, in March 2017, it acquired Kaggle for an undisclosed sum. Some of its AI purchases focus on general improvements in AI research while others are applied directly to the company’s bottom line. (Source: “The Race For AI: Google, Twitter, Intel, Apple In A Rush To Grab Artificial Intelligence Startups,” CB Insights, March 30, 2017.)

This is important because virtually all of Google’s revenue comes from advertising. Additional revenue will come from AI acquisitions that generate huge cash savings, as in the case of DeepMind, while other AI acquisitions will boost the company’s overall business revenue.

None of this has really been factored into Alphabet’s share price.

AI Stocks

Chart courtesy of StockCharts.com

FB Stock Should Be a Massive AI Winner

Facebook’s 1.2 billion daily active users upload 136,000 photos and update their statuses 293,000 times per minute. AI helps Facebook process billions of posts, images, and comments so it can better target its ads to users.

The company’s “DeepText” is a language-based text-understanding search engine that can understand the textual content of several thousand posts per second, covering more than 20 languages. “DeepFace,” meanwhile, is more successful than humans when it comes to facial recognition. (Source: “Introducing DeepText: Facebook’s text understanding engine,” Facebook, June 1, 2016.)

AI and ranking algorithms also help Facebook deal with fake news, which gives the company more credibility, which helps generate additional ad revenue.

“AI is both going to be great on showing people content that’s really good and helping us enforce the community standards that we have to make sure that everyone has a good and fair experience,” Zuckerberg said. (Source: “Facebook Q4 Earnings Call Transcript,” NASDAQ.com, February 1, 2017.)

But even giants like Facebook need to grow to survive. Since 2012, Facebook has acquired five AI companies.

To help make the average Facebook user experience better, the company has developed the Facebook Artificial Intelligence Research lab. At Facebook, more than 40 teams, and 25% of the company’s engineers, use AI technology to develop products and services. (Source: “Facebook AI Academy,” Facebook Research, March 29, 2017.)

Because AI talent is drying up, the company also offers formal classes and research internships to build new AI learning talent and spread it across the company.

AI Stocks

Chart courtesy of StockCharts.com

AI’s Impact on AAPL Stock

Apple’s Siri is a chatty virtual assistant that is integrated into the “iPhone,” “iPod touch,” “iPad,” and Apple’s “HomeKit.” Apple, along with all of the other major tech companies (Amazon has Alexa, Microsoft Corporation (NASDAQ:MSFT) has “Cortana,” Google has the Google Assistant), believe talking to an artificial intelligence will be the most effective way of interacting with our computers.

Siri can create reminders, take notes, find restaurants, check stock prices, play music, check flight statuses, solve math problems, take pictures, and also read out your “WhatsApp” messages.

Aside from what seems like a pretty basic use of AI, Apple is also working on other AI projects. Both Apple and Google are rumored to be developing self-driving vehicles.

Apple is also rumored to be developing augmented reality (AR) technology, which uses images, video, and games in the real world. Company CEO Tim Cook has likened AR’s potential to that of the smartphone. Apple’s AR products are reported to include digital glasses that connect to an iPhone wirelessly and beam content (movies, maps etc.). (Source: “Apple’s Next Big Thing: Augmented Reality,” Bloomberg, March 20, 2017.)

It is widely expected that Apple’s AR technology will eventually replace the iPhone. That is clearly some time off, but AR technology could, in the meantime, make its way into the iPhone.

It’s a smart preemptive strike. The global market for AR products is expected to soar 80% to $165.0 billion by 2024; more than four times greater than the AI market.

To help it get there, Apple has made seven strategic AI acquisitions over the last few years. In 2014, it quietly acquired speech recognition company Novauris Technologies Ltd. In January 2016, Apple acquired Emotient, Inc., a company with AI facial recognition software that reads human emotions.

In August 2016, Apple acquired machine learning and artificial intelligence startup Turi for around $200.0 million, and in February 2017, Apple added facial recognition AI company RealFace to its stable of recent AI acquisitions.

If all goes according to plan, Apple will be a leader in both the AI and AR markets. And investors should expect the company’s share price to surge over the short term and long run.

AI Stocks

Chart courtesy of StockCharts.com

Tech Sector Outlook

The tech sector outlook remains bullish, as does the outlook for big AI players like Alphabet, Facebook, and Apple. AI is poised to be the biggest game changing technology to revolutionize the way we live since the personal computer and, most recently, the Internet.

Except, AI could be even bigger. The capabilities are endless. A company that can harness the power of AI and evolve from Narrow to even General AI will dominate the AI market and others as well. That’s what makes AI so interesting; AI doesn’t just impact the technology sector, it impacts the entire world.

With a high barrier to entry and with smaller pure play AI companies being snapped up, it’s well established AI companies like Alphabet, Facebook, Apple, Amazon, Tesla Inc (NASDAQ:TSLA), Microsoft, and software companies like Intel Corporation (NASDAQ:INTC), Advanced Micro Devices, Inc. (NASDAQ:AMD), and NVIDIA Corporation (NASDAQ:NVDA) that could be the biggest AI winners and make tech investors rich in 2017 and over the next 10 years.

Article By John Whitefoot