AI started 25 years ago, but it is now that it is having a breakthrough moment. This article looks at what may be the best way to invest in AI stocks.
Key points.
- Artificial intelligence will revolutionize online search, commerce, and content.
- It could help tech companies tap $6 trillion which is currently spent offline.
- Large companies are best positioned to benefit since AI requires sizeable investments in data storage, engineering, processing speeds and more.
$6 Trillion Mega Opportunity.
AI will accelerate digital transformation and tech diffusion across the economy. That will let both companies and investors tap into over $6 trillion consumption which is currently being transacted offline.
Social media, e-commerce, and public cloud business will get the earliest boost by better search tools and AI assistants. AI could –
- Power stronger recommendation engines for ecommerce,
- Create advanced tools for producing content, and
- Drive demand for public cloud
Major Gainers
Advertising, e-commerce, and the public cloud are particularly poised to benefit from the evolution of AI tools. Because AI has ability to digitize untapped offline spending. The largest and specially the innovative global companies in these areas will be the best investment opportunities. There are other sectors like shared economy, manufacturing, transportation, that will also gain. But that will take longer time, so we are focusing on sectors that are ready to go with AI.
A. Advertising.
Only around 21% of worldwide advertising in 2022 was digital, with a projected $780 billion in ad spending remaining offline. AI, large language models, and generative-AI tools could help advertisers better target customers online, resulting in enhanced paid and organic search engine results, increased engagement in social media and online video, and increased ad unit sales. Non-digital media cannot offer most of these benefits and is poised to lose its share.
In advertising, artificial intelligence (AI) refers to the simulation of human intellect in computers that are programmed to think like humans and copy their actions based on information provided to them. AI uses historical data to learn from past experiences and make smart decisions in the future. AI can help advertisers develop more personalised experiences, target the correct audience, and make faster decisions.
An example of AI in advertising: Starbucks can predict your next order With over 34,000 stores worldwide, Starbucks is a global empire. Customers know what to expect when they order from a Starbucks no matter where they are. A venti vanilla latte with sugar-free syrup should taste the same in Bangalore as it does in Boston. Now Starbucks can predict when an individual is going to make their next order through its app and use of AI technology. The coffee company’s app records purchases, retrieving information that includes store location, time, and specific order. With this precise data, Starbucks’s marketing team can serve more personalized, tailored messages to customers who are likely to purchase. This messaging includes order recommendations as well as special offers or promotions.
B. E-commerce.
Only 23%, or about $1 trillion, of retail spending is online in the U.S. in 2022. It means, there is a potential $3.3 trillion untapped opportunity for e-commerce. And this is even a bigger opportunity in developing markets like India where this figure is just 8%. Large language models (LLM) can improve the shopping experience for customers, increasing sales and making online shopping more interactive. AI can also reduce costs for retailers with more efficient logistics networks and routing, lower return rates, based on more efficient product targeting and improved customer service.
Indian e-commerce is especially lucrative. It has one of the world’s lowest data and smartphone costs, growing internet penetration, and a proliferation of shopping sites. It is experiencing a dramatic rise in e-commerce as it becomes the second largest digital economy.
C. Public Cloud.
Analysts expect cloud adoption rates to grow, with AI demand fuelling the acceleration in the medium to long term. According to an IDC report, AI will drive one-third of the total growth in public cloud. It expects global AI spending on the public cloud to reach $328 billion in 2025.
AI is critical for survival as well as growth of many industries. But it requires a lot of computing power, which costs money, manpower, and maintenance. And a public cloud is the best solution for all these three problems in place of on-premise implementation. An analysis by IDC, sponsored by Microsoft, found a dramatic financial and business benefits of public cloud. Most notable: a 37% drop in operations costs, 391% ROI in three years, per organization!
While not AI-specific, such dramatic results should impress even the most tight-fisted CFOs and technology committees.
Industry forecasters expect the shift of AI to clouds will continue to race ahead. IDC forecasts that nearly 50% of all accelerated infrastructure for performance-intensive computing (including AI and HPC) will become cloud-based by 2025.
Best Way to Invest
The largest tech companies will be the biggest gainers from this AI evolution in early stage. Here’s why:
- Capital intensive: Training in and development of AI tools requires investments in hardware, computing power, data storage, networking, bandwidth and additional data scientists.
- Needs large data sets: Companies with large, unique and high-quality data sets and a willingness and ability to invest will be better able to optimize their models. Smaller and new companies normally do not have such large data sets.
- Needs top quality skills: Developers will be critical to this next wave of innovation, building new applications for both businesses and consumers using these large language models. AI coding tools will be a key area of innovation and over time, AI-assisted coding will make coders faster and more efficient.