Investing in AI: hype or a ticket to the future?

Stock market hype comes and goes. Metaverse, blockchain, hydrogen and more: in recent years, we have seen investors licking their lips over the emergence or breakthrough of new technologies, only to find that their high expectations were not sufficiently met, initial enthusiasm started to wane, and investors decided to take their profits and run. Is AI just the next hype train, or is it different this time?

Tech for everyone, everywhere

At first glance, AI has the potential to be huge. It’s a technology that we can all benefit from. AI helps to filter spam from your mailbox. AI makes sure you see personalised ads when you browse. AI helps you take the fastest route somewhere. The list goes on. While AI developments have long remained concealed from view, the arrival of Large Language Models (such as ChatGPT) has catapulted the technology into the spotlight. Summarising a long document or building a simple app: thanks to AI, you can do it even if you're not particularly good at writing and you're not an IT head. All people with an internet connection – which is now more than 5 billion of us – have recently been able to use the technology with a minimum of knowledge and without any expensive subscriptions or specialised equipment.

Impact on all sectors

Second, AI is a technology that is not limited to one industry or sector and can be useful and add value everywhere. From healthcare to education and transport to agriculture, AI has the potential to change the way we work, learn and live. AI may even spark the emergence of completely new sectors, as has been the case in the past. Major technological breakthroughs (steam engines, mass production, computers and the internet) have increased our productivity and prosperity and created more demand for other services. For example, the development of the internet resulted in online commerce and streaming services. AI also has the potential to spark such shifts.

A head start towards an (uncertain) future

Many people agree that there is much potential here, leading to a great deal of enthusiasm and high expectations. In other words, a healthy dose of caution is essential, particularly if you are considering investing in AI.

In recent months, companies have seen their share prices rise simply by hinting that artificial intelligence also benefits the growth potential of their business. Some investors have sought exposure to the technology at any price. Certain loss-making AI companies saw their market value double in barely half a year. Although many companies still have to achieve their great AI ambitions, investors decided to gain a head start towards the future.

So, if you are currently considering investing in AI, you may find yourself straddled between a promising and interesting technology on the one hand, and the uncertainty surrounding the rush towards everything to do with AI on the other.

A versatile area for investment

If you are convinced of the investment potential – in the short and/or long term – there are roughly four sub-areas you can invest in today.

• AI chip manufacturers: These companies specialise in designing and manufacturing the hardware needed to make AI applications work. Companies like Nvidea and AMD manufacture products that are essential to the operation of AI systems and allow you to benefit from the growth of AI indirectly.
• AI software development companies: These companies create the programs and algorithms that make AI systems work. They range from small startups focusing on specific AI applications to large tech companies with their own AI platforms, such as Alphabet and Microsoft.
• Data analysis companies: In order to function properly, AI relies heavily on large amounts of data. Data is nutrition for AI. Companies specialising in collecting, analysing and managing such data may offer good investment opportunities.
• Application-oriented companies: These companies use AI to solve specific problems or provide services in different industries, such as healthcare, finance and transport.

How to invest in AI

Investing in AI is a relatively recent phenomenon. On one end of the spectrum, we find companies that rely entirely on AI for their revenue, while on the other we have companies that generate only a fraction of their revenue with AI. The complexity of AI, the speed of its technological advancement, and the expertise needed to assess companies’ innovation potential and long-term prospects can make it difficult for investors to fully understand it and take advantage of its potential. With this in mind, investors can invest in AI with individual shares, trackers (ETFs) or actively managed investment funds. Which of these three may be suitable depends, among other things, on your risk appetite, knowledge of the topic and how much time you wish to spend on your investments. If you are willing and able to take more of a risk, and you want to ride the current wave and buy and sell on a daily basis, shares may be more suitable. If you are investing in the long term and would prefer a more diversified exposure, ETFs or actively managed investment funds focusing on AI may be one possible solution.

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