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The hottest sector in the stock market right now is Artificial Intelligence or AI for short. This futuristic technology is fascinating to many and whether we like it or not, it will change our lives. Much like cryptocurrency over the last few years, investors cannot get enough of the opportunity that awaits. With any new technology, there is a lot to learn about AI. However, it is very hard for the average person to commit to learning such an advanced technology and for that reason they simply avoid it. This is a big mistake. As many of us have already seen, 2023 has brought big moves in stocks related to artificial intelligence. In fact, some stocks that have the letters "AI" in their tickers have brought irrational panic buying, sending those names up 100% plus in just a matter of days! Many investors just want those stocks that are already making moves in the market. And there is nothing wrong with playing into that speculation. But there are many ways to approach the sector for more risk averse investors. In this write up, we will explore why the AI space has become so hot. We will then look at the industry and the many use cases. From there we will discuss some pros and cons of being invested in the space. And then we will get into the publicly traded companies, both big and small, that have made significant moves so far this year. ChatGPT Changes Everything According to a recent Goldman Sachs report, recent advances in generative artificial intelligence could raise global GDP by 7%. This would be an equivalent to $7 trillion in GDP, which would be accompanied by a 1.5% lift in productivity growth over a 10-year period. The interest in AI has been there for many years, but more recently ChatGPT has sparked a revolution that opened possibilities and use cases. ChatGPT changes everything as the innovation has the potential to transform efficiencies of business operations and cut costs at the same time. Because some of us might not be familiar with ChatGPT, I asked the chatbot to define itself in one sentence. Here is the answer that it spit out in seconds: "ChatGPT is a large language model trained by OpenAI, based on the GPT-3.5 architecture, that is capable of conversing with humans in natural language." I followed up by asking to define ChatGPT as if I am a 10-year-old. Once again, an answer came in seconds: "ChatGPT is like a really smart computer that can talk to people like you and me and help answer questions or have conversations. It's kind of like having a robot friend who knows a lot of stuff!" How cool is that! Not only was ChatGPT able to define itself, but it also had the ability to adjust its answer to the readers comprehension level. This is just a simple example and the tip of the iceberg in what ChatGPT and Artificial Intelligence can do. Continued . . . | ||||
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| How Business Can Use AI You have likely talked to an automated system or chatted online with an automated robot to try to solve a problem you had. I have done this many times with cable and phone companies and it rarely leads to any results. ChatGPT is far different from that experience as it is based on a technology called "deep learning." The bots we are used to are programmed for simplistic conversation responses, but ChatGPT can analyze the context and meaning of the conversation and learn from it. This allows for more complex conversations based on user input, which improves communication between human and machine significantly. We are still in the early stages, but businesses are already utilizing this advanced chatbot for customer service, hiring, decision making, marketing, product design, language interpretation and many forms of automation. Industry Use Cases For AI I mentioned cryptocurrency in the intro and how hot that sector was before the bubble popped. The reason so many investors were interested in crypto was the many uses cases that each coin promised. While many of these never came to fruition, the dream of changing the world with crypto was there. And with AI, the same dream exists, but the use cases are more realistic. Let us go over how the following industries will be using AI in the near future: Defense- Threat detection, mission planning, cybersecurity, intelligence analysis. Education- Tutoring, grading automation, personalized learning, educational content creation, and student performance prediction. Energy- Demand forecasting, preventive maintenance measures, energy optimization. Entertainment- Content recommendation, personalize advertising, content creation in video and audio. Farming- Management, crop monitoring, predicting crop yields. Finance- Fraud detection, risk management, trading algorithms, compliance, and credit scoring. Healthcare- Disease diagnosis and prediction, drug discovery, patient monitoring, and medical research. Manufacturing- Robotics automation, quality control, supply chain optimization, and predictive maintenance. Retail- Customer support, marketing, personalization, demand forecasting, visual search, and inventory management. Transportation- Autonomous vehicles, traffic prediction and optimization, and logistics. As you can see, there will be changes in every industry because of this new technology. Pros and Cons of Investing in AI For investors, it's all about risk and reward. And with any new technology, there will be a lot of risk, but tremendous rewards. In the short-term, the biggest pro is the growth potential that will come with many young AI companies. If they can gain a competitive advantage in their niche market, they will have a longer-term profit potential for investors. Another pro for being in AI is diversification into an industry that will take market share away from other areas of the economy. There are only so many pieces of the investing pie and being part of the rapid growth that comes from AI will insure investors a bigger piece of that pie. When it comes to the cons, it's all about the risk. The space is moving so fast and there is a lot of uncertainty on which company will fulfill their promises. Eventually the industry might get so hot, that the AI stocks become overvalued. For those of us that were in crypto, we know that when an industry is too hot, the bubble can pop quickly. Additionally, there will be those out there that take advantage of the excitement through scams in which investors will be left holding the bag. The AI Stocks You Know Well Now that we have a better idea of what this space is all about, let us talk about the companies and stocks involved. First, let's chat about the bigger names you already know and how they are using artificial intelligence. Alphabet: The company has its own chatbot that is like ChatGPT. Named Baird, the bot got a latter start and had some issues but will be a competitor to ChatGPT. Alphabet uses AI for natural language processing, image recognition, and recommendation systems. It also has an AI-powered Google Assistant, which is used for voice-activated search and home automation. Amazon: Alexa is Amazon's popular AI-powered virtual assistant that is used in smart homes and speakers. Amazon also uses AI for product recommendations, personalization, and logistics optimization. Microsoft: The company made their move quickly, investing $1 billion into OpenAI in 2019 and added to their investment when ChatGPT debuted. Now in for $13B, Microsoft is now on the forefront of this technology. They have integrated ChatGPT into Bing, sales and marketing software, GitHub coding tools, Microsoft 365 productivity bundle and Azure cloud. IBM (IBM) -IBM has been at the game for years, introducing their AI-powered assistant Watson back in 2010. While the company has fallen behind, they will likely be scrambling to make some AI acquisitions to stay competitive. NVIDIA (NVDA): The best stock in the AI game this year has been NVDA. The company is a leading manufacturer of graphics processing units (GPUs) that are widely used for AI applications, such as deep learning and image recognition. For AI to work, you need the NVIDIA GPUs, so investors have piled in. So far this year, the stock is up almost 100%. Tesla (TSLA): Tesla uses AI for self-driving technology, energy management systems, and manufacturing processes. Their popular autopilot technology relies on a network of cameras, radar, and ultrasonic sensors to detect and respond to the environment and uses deep neural networks to process this data in real-time. The AI Stocks You Never Heard Of Of course, big companies like Nvidia, Microsoft, Tesla and Alphabet will be the leaders in artificial intelligence technology. However, the real money made in AI will be investments made in the smaller unknown companies. Here are a few smaller names making moves in the space: C3.AI (AI): With perhaps the best ticker for the sector, C3.AI is one of the more notable AI stocks out there. The company is an enterprise artificial intelligence software company that delivers a comprehensive Enterprise AI application development platform and a growing family of turnkey enterprise AI applications. Digital Turbine (APPS): The company that provides a platform that uses AI to help mobile app developers and advertisers deliver personalized content and advertising to users. SoundHound AI (SOUN): The company is an innovator of conversational intelligence. It offers an independent voice AI platform, which enables businesses across industries to deliver conversational experiences. Big Market Moves Equals Opportunity The smaller the company the bigger the reward, but also the bigger the risk. Let us look at some moves of small AI stocks just from the start of the year: AI: $11.19 to a high of $34.68 or 209%. BFRG: $2.72 to a high of $9.50 or 249%. DUOT: $2.00 to a high of $5.70 or 185%. SOUN: $1.77 to a high of $4.97 or 180%. NRDY: $2.25 to a high of $4.44 or 97%. BBAI: $0.67 to a high of $6.77 or 910%. Remember, these stocks have a lot of reward, but some have very low market caps and with that, plenty of risk. Once they become more established, the primary drive of the stock price will shift from speculation to earnings. Investors can utilize the Zacks Rank and watch the movement of earnings estimates to stay in the right names. In Summary It's no secret that ChatGPT and other AI technologies are changing the world. However, some people view these developments with fear and skepticism, worried that AI will take over jobs and create a bleak, dystopian future. But it is time to shift that thinking and recognize the opportunities that AI presents. Rather than being a threat, AI is an opportunity for businesses to improve their operations and provide better service to their customers. With AI technologies, businesses can streamline their processes, make better decisions, and innovate in ways that were previously impossible. Investors who recognize the potential of AI can also reap significant profits. Companies like Tesla, IBM, Microsoft, and Amazon have been at the forefront of AI development. For more risk averse investors, this is a great way to get exposure. But for those with a high-risk tolerance, they should consider including smaller AI stocks in their portfolio. Either way, AI is a great way to diversify your investments and capitalize on the ongoing expansion of this industry. How to Get Started with AI Investing Zacks is making it easy. We just published a report that homes in on 5 exceptional investments in an AI segment that's poised to skyrocket. Click for your chance to access ChatGPT: 5 Stocks for the Predicted $15.7T AI Boom » It names 5 starter stocks to explore ASAP. Stock #1: This company is deeply involved in nearly all aspects of High-Performance Computing. Catch it in the midst of a soaring rebound. Stock #2: A key partner of Stock #1, it provides semiconductor software and is steadily trending upward. Stock #3: Much like Microsoft reinvented Bing with focus on ChatGPT, this industry titan is bringing innovation and transformation to a booming category. Stock #4: "Dark data" hunter in the age of AI has lined up Fortune 1000 clients, aiming for a turnaround that is truly massive. Stock #5: Little-known "sleeper company" with rising earnings has quietly become a leader in Robotic Process Automation. AI is the "brains" but RPA is the "hands" that do the work. Click here for the report that names and explains them » But that's not all you get. You're also entitled to full 30-day, real-time access to ALL our private buys & sells as part of the celebrated Zacks Ultimate arrangement. Don't miss your chance to follow real-time moves from ready-to-fly stocks under $10 to professional options trades... from insider buys to long-term value stocks… from home run investments to income recommendations. In fact, Zacks Ultimate closed 176 double- and triple-digit gains in 2022 alone. 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Jeremy Mullin is a technical expert with 18 years of pinpointing investment opportunities. He invites you to claim your ChatGPT report and 30-day access to ALL Zacks private buys and sells for $1. | ||||
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