Investing in AI: Addressing important questions

Oct. 16, 2023

The recent and rapid advancement of artificial intelligence (AI) is prompting widespread interest among investors, who are wondering how the technology could potentially be deployed in the future and how it may impact the market more broadly.

To help you understand the investing opportunities, risks and impacts that AI may bring, here are answers to some of your top questions:

What’s driving the recent advancement of AI technology?

Modeling human intelligence in computers has been a decades-long effort, but technological advancements have accelerated in the past couple of years.

From a technical perspective, what’s changed recently to lead to new AI advancements — such as ChatGPT — is the confluence of computing power, connectivity and storage. Companies finally have the computing power and the data to harness more performance from deep neural networks.

How does the advent of AI compare to things like the launch of the internet, cloud-based computing or mobile devices?

The advent of generative AI, and AI in general, is going to rival the advent of the internet and mobile computing in the technology marketplace. However, AI is different in that it’s not necessarily a distribution engine.

When it comes to the internet and mobile devices, consumers can play games, complete transactions and view advertisements. Those developments were huge for distribution, but we see generative AI as a powerful tool for knowledge. It’s going to make the internet more powerful and easier to use.

What areas of opportunity should investors be paying attention to in AI?

The speed of innovation from companies around AI has been astounding. We’re seeing a faster cadence of product releases that’s helping create better products for end users.

For example, AI could help drive productivity gains in code writing and is even reshaping health care, with how patients are diagnosed, treated and monitored. Other areas — such as customer service, IT help desks, content creation, fraud detection, supply chain optimization and predictive maintenance — could also be supported through AI tools.

The speed of change is hard to predict, but it’s fair to say that AI innovation has been faster than most investors expected. We anticipate continued sporadic breakthroughs as the technology evolves.

What can investors consider as they think about investing in AI?

Earnings reports are littered with AI references and partnerships. Investors need to understand the company’s business model and ask the following questions:

  • Does the company have a competitive moat around their business?
  • Do they understand product differentiation?
  • What do the economics, competitive landscape, demand and valuation suggest?

Investors should look for AI-related products that are capturing market share, perhaps resulting in margin improvement or incremental revenues. However, it’s important to not get caught up in the hype of AI and how it’s being marketed around the world.

What are other unknowns and risks that investors should keep in mind?

Investors will want to be aware of the following:

  • Regulation is a big unknown: As governments around the world attempt to make sense of AI, regulation could slow the pace of adoption or create impediments.
  • Bad data is a concern: AI relies on data that already exists and the data that we continue to provide it, so bad data could lead to bad outcomes. Bad outcomes could give pause to further developments and deployments.

What’s the bottom line?

Entities around the world — companies and governments included — are still trying to “solve” AI and at the end of the day, it’s a technology that relies as much on us as we do (or will) on it.

There’s no denying the power and prevalence of AI in the technology marketplace and in society as a whole. We expect AI to have a $7 trillion impact on the global economy over the next decade, but investors should remain grounded, stay on top of new developments and stick to reason. AI may be “the next big thing,” but reality doesn’t always live up to expectations.

Your Ameriprise financial advisor is ready to help

When technology advancements threaten market disruption, it’s important to remember that new investing opportunities can arise. Know that your Ameriprise financial advisor is well positioned to help you to take advantage of any potential opportunities in alignment with your risk tolerance, time horizon and financial goals.