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Artificial Intelligence and Investing
AI (artificial intelligence) is poised to have a significant impact across various industries, transforming the way they operate and creating new possibilities. While it’s challenging to predict the future with absolute certainty, as of my last update in September 2021, the following industries were expected to be among the most affected by AI:
- Healthcare: AI can enhance medical diagnosis, personalize treatment plans, accelerate drug discovery, improve patient monitoring, and optimize healthcare operations.
- Finance: AI can automate financial tasks, detect fraud, predict market trends, and offer personalized financial advice to customers.
- Transportation: AI is revolutionizing autonomous vehicles, optimizing logistics and supply chain management, and improving traffic control and navigation.
- Retail: AI can personalize customer experiences, optimize inventory management, and provide better product recommendations.
- Manufacturing: AI can optimize production processes, predict equipment maintenance needs, and enable robotics and automation.
- Education: AI can personalize learning experiences, offer intelligent tutoring systems, and streamline administrative tasks for educators.
- Agriculture: AI can optimize crop management, monitor livestock health, and enhance precision farming techniques.
- Customer Service: AI-powered chatbots and virtual assistants can enhance customer support and streamline interactions.
- Media and Entertainment: AI can personalize content recommendations, enable content creation, and enhance visual and audio effects.
- Energy and Utilities: AI can optimize energy consumption, monitor equipment health, and improve grid management.
It’s important to note that the progress of AI in these industries is subject to various factors, including technological advancements, regulatory changes, societal acceptance, and ethical considerations. Additionally, new industries and applications for AI may emerge as the technology continues to develop.
Interesting enough, I didn’t write the above, ChatGPT did. ChatGPT is an AI source available for everyone on the internet. The above took me all of two minutes to produce versus hours it would have taken me to do the proper research to write this article. I only asked Chatted to write an article on AI and investing. If you are reading this, you witnessed AI saving a company many hours in production time.
Following are my personal thoughts regarding AI and investing.
I am not sure anyone doubts the impact AI will have on businesses. When it comes to investing in companies that will be the benefactors of AI, we need to understand several universal truths, in my opinion:
- Be careful chasing hype. Just because something is going to be big in the future doesn’t mean companies can’t be over-valued today even if they are going to be a winner. Let me take you back to 1999 when we knew data was the future of cellphone usage. Third generation and beyond was already being discussed due to the amount of capacity which would be needed in the future. Fiber companies were selling for double digit price to sales. Tech stocks dropped over 70% from the end of 1999 to the end of 2002 (source: yahoo.com). The hype led to the big drop because the market got way ahead of itself. Mind you, cell phones and data ended up as big as anticipated. Yet this didn’t stop the market from dropping significantly.
- If you and your family, friends and co-workers are talking about an opportunity in stocks there is a very likely chance it is already built into the stock price. AI is going to be big but there is a reason some of these companies’ trade at huge valuations. One of the best analogies I like to use in this case is imagine there is a big plot of land with small houses and retail going for $100 a square foot. The Dallas Cowboys announce they are going to build a new stadium on part of that land. Prices jump to $500 per square foot on the announcement due to the expectation of the future. We don’t want to be that person that runs around after it goes up to $500 a square foot screaming “we need to buy land on that plot because the Cowboys are moving there.” That news is already built into the price. Maybe the price per sq ft will end up higher, or maybe lower, when all is said and done. The big opportunity was when it went from $100 to $500. It really isn’t different for the stock market.
- The key is thinking at not the next level, but even the next level. Right now, all these tech stocks are running high because of AI. They will not reach their lofty valuations if companies don’t employ their technology. If they do, and I think we would all agree they will, they will benefit in a big way. The very nature of AI and business is to enhance profitability. Yet, the non-tech companies aren’t benefitting from the AI story yet.