Artificial intelligence (AI) is a generation-defining theme for investors, bringing with it wide ranging applications and far reaching transformations that look set to impact every sector and portfolio.
Playing the AI theme means looking both at the big players who are making waves right now and the companies poised to benefit as the use of AI filters out into the mainstream. Here are five ways you may not have thought of to invest your ISA allowance in AI.
1) Cyber security
AI is being used as both gamekeeper and poacher when it comes to online safety. On the one hand, criminals are getting better at using artificial intelligence to carry out increasingly sophisticated attacks, from data poisoning to manipulate content, to the creation of deepfake images. On the flip side, cybersecurity companies are turning to AI to spot suspicious data and detect and prevent attacks.
Investors keen to play this theme could do a lot worse than investing in US multinational cyber security company Palo Alto Networks, a holding in AXA Framlington American Growth. A leader in its field, Palo Alto collects more security data than any other cybersecurity company. It continues to use AI to develop, launching an update in November 2023 to its award winning AI-driven security operations platform, Cortex XSIAM, built for superior security analytics and protection against threats.
2) The next ChatGPT
Launched in November 2022, AI-powered chatbot ChatGPT exploded in 2023, using a large language model to create content in seconds after only a few lines of typed prompts. You can’t invest directly in ChatGPT’s owner, OpenAI, because it isn’t publicly traded. The way in is to invest in Microsoft, which owns almost half of OpenAI. Microsoft is the biggest holding in the Capital Group New Perspective fund, for example, which invests in multinationals that benefit from transformation in the global economy.
Yet in the fast-paced world of AI, even ChatGPT is quickly becoming old news. Not to be outdone, at the end of last year it was revealed that Apple is plunging into artificial intelligence technology by developing its own large language models, individually personalised and accessible only to you, to use from an iPhone or iPad. Apple is the second biggest holding in the Comgest Growth America fund, and as a bonus Microsoft is its largest holding.
3) Nvidia and beyond
Nvidia is an American corporation that invents and designs the semiconductors in computer chips that are the secret behind AI tools like ChatGPT. The rise in popularity of AI tools last year sent shares in Nvidia soaring, catapulting the company’s valuation above the one trillion dollar mark, so it joined the so-called ‘magnificent seven’ tech giants alongside Amazon, Apple, Alphabet, Meta Platforms, Microsoft, and Tesla.
Perhaps unsurprisingly then, Nvidia is the second biggest holding in the Sanlam Global Artificial Intelligence fund. CT Global Extended Alpha, which invests in high return on capital businesses experiencing sustainable structural growth, also invests in Nvidia.
Already though, investors are looking beyond Nvidia for the next big thing in chip makers to take market share, and a serious contender is Advanced Micro Devices (AMD), another American company. In an update at the end of January, AMD boosted its 2024 forecast for its artificial intelligence processors by $1.5bn, and, although this disappointed slightly, the company is forecast to sell more than $3.5bn worth of AI chips this year (source: Reuters).
4) Robotics
Robotics has been touted as the ‘next big thing’ for some time, but it hasn’t quite borne fruit yet and has remained far behind human dexterity. But, combined with an AI method of learning, the expectation is we will start to see more breakthroughs. For investors seeking a company that will benefit from this perfect union, look to Fanuc.
Japanese company Fanuc is a global market leader in computer numerical controls, the specialist computers that synchronise the movements and actions of machine tools in robotics. Fanuc already uses AI in certain applications, and is also a major investor in Japanese startup Preferred Networks, which is itself ramping up investment in customised artificial intelligence chips.
The Baillie Gifford Japanese fund has Fanuc in its top ten. Sarah Clark, Japanese equities investment specialist at Baillie Gifford, says: “It is striking that most of its employees are not simply engineers but software specialists, and that the making of robots and robotic components is itself largely done by robots.”
5) Gaming
Gaming is a potentially big area for AI, and one to watch. One application, for example, could be to massively cut development time. Where a games company used to have to pay digital artists to make 100 trees for that life-like background, now they only need to draw a single tree before AI takes over and repeats the image. Previously scripted non-player characters could soon talk to you with endless variety using ChatGPT-style prompts.
UK listed gaming stocks to consider are the likes of developer Frontier Developments, which has licensing rights to global franchises like Jurassic World and Formula One and Team17 Group, a studio with a focus on team-based games. Keywords Studios, which creates in-game art and provides backtesting, works with industry giants like Microsoft and Electronic Arts.
Juliet Schooling Latter is research director at FundCalibre and Chelsea Financial Service
