In 2023, Artificial Intelligence (AI) took center stage in societal discussions, with companies at the forefront of the AI revolution dominating headlines and outperforming the market. The mention of AI in earnings calls by S&P 500 companies increased to 36% in Q4 2023, up from 31% in Q3, indicating a growing trend towards AI adoption. Investors face the challenge of separating AI hype from reality, but those who can identify overlooked areas for AI application may see significant gains in the market. The average stock price increase for companies mentioning AI in Q4 2023 was over 28%, setting the stage for a further acceleration of AI adoption in upcoming earnings calls in 2024.
AI, in its current state, is comparable to an open-ended computer program that mimics human learning by identifying patterns, making predictions, and analyzing data for constant improvement. Everyday interactions with AI, such as predictive text on smartphones, facial recognition for phone unlocking, and AI-powered customer service chatbots, are often overlooked amidst the excitement around futuristic AI applications like autonomous vehicles and neural implants. The next stage of AI development is likely to involve widespread adoption beyond traditional tech companies by various industries, offering new opportunities for AI integration and growth.
AI’s potential to accelerate scientific and medical research is one of the most promising applications of the technology, with the ability to speed up pharmaceutical development, drug testing, and cataloging drug performance and side effects. Retailers are also leveraging AI to analyze customer behavior, optimize pricing strategies, and manage inventory. As AI continues to advance, traditional job roles are being replaced by automation, with machines currently handling 34% of business tasks and expected to increase to 43% by 2027. However, the rise of AI will also create new job opportunities for data scientists, engineers, robotics experts, and other highly skilled roles.
Investors can position their portfolios for the AI revolution by maintaining market-cap weighted exposure to the US economy, where AI is expected to permeate all sectors. Allocating more heavily to the Nasdaq or the S&P Technology Sector ETF can increase AI exposure, with chipmakers and cloud data storage companies being essential components of AI technology. Specialized ETFs focusing on AI, such as the Invesco AI and Next Gen Software ETF or the Global X Robotics and AI ETF, offer additional options for investors seeking to capitalize on the AI boom. Identifying financially healthy companies with a track record of R&D spending can also provide opportunities for investors to benefit from the integration of AI into non-tech industries.
AI is expected to revolutionize the way companies operate and unlock efficiency across various industries in the years to come. While AI is currently concentrated in the technology sector, it is rapidly spreading beyond to become a necessary strategic initiative for all major industries. Investors can capitalize on the AI boom by looking beyond obvious beneficiaries and positioning their portfolios for the emerging opportunities presented by the integration of AI technology across different sectors. By identifying companies willing to invest in R&D and integrate AI into their businesses, investors can potentially find the next wave of AI beneficiaries and position themselves for long-term growth in the evolving AI landscape.
