Disruptors: The next phase in AI: an opportunity or the risk of a bubble?
The groundwork for AI has been laid. We’re now entering the phase where AI is put to use – presenting new opportunities for companies and investors alike.
Ever since the launch of ChatGPT, generative AI (GenAI) has been in the spotlight. Companies are now exploring ways to deploy AI to achieve cost reduction, capacity expansion, and enhanced customer experiences. The realisation of AI’s potential will open up a wide range of new investment opportunities.
First phase: the ‘enablers’ of AI
So far, the primary investment focus has been on shares of ‘AI enablers’: companies that facilitate the use of AI, such as semiconductor manufacturers, AI software producers, and cloud data storage providers. During this initial phase of the GenAI era we have seen significant price hikes in semiconductor stocks, among others. (See chart.)
Next phase: the practical application of AI
In the next phase in the evolution of the AI market we can anticipate that companies will look to apply AI more efficiently.
One key use case will be the application of AI to structure the vast amounts of data at their disposal. Better structured data allows for better analysis. Through data analysis – which is also done with the help of AI – companies will gain a better understanding of their customers’ needs. This enables more efficient customer targeting, allowing these companies to potentially secure a competitive edge.
AI-enabled customer reviews
Data is an abstract concept. To make it a bit more concrete: customer feedback is also data. Online store Amazon, for example, uses customer reviews to provide clarity about the pros and cons of its products. With the help of AI, feedback from customers – who have purchased a particular product – is summarized and displayed in a well-structured way on the product page of the website. Customers who are interested in that product can see at a glance what other customers thought of it, without having to read all the reviews.
These applications are made possible by specific AI software that analyses data. The companies that create this type of AI software are an interesting consideration for investors.
At the same time, the ever-growing amount of data – and the increasing number of cyber attacks – requires good security. Investing in cybersecurity companies is therefore worth considering as well.
Investing in a bubble?
Will the hype around AI-related stocks lead to a market bubble? That remains to be seen. But the risk of a bubble forming shouldn’t deter investors from capitalizing on these long-term structural trends that will continue to disrupt the market. In fact, investing in the early stages of a bubble can be advantageous.
Investing is a matter of diversification and discipline. You can take advantage of the AI trend by investing a portion of your portfolio in AI-related stocks, or through thematic mutual funds or ETFs that specifically focus on digitalization or AI. If the prices of these investments rise and the stake in your portfolio grows too much, you can reduce the position back to its initial size. This way, your portfolio position in AI will not become too large, but you will continue to benefit from the trend. Whether or not AI transpires to be an investment bubble, it’s better to invest and trim a position that is growing too much than to miss out on the trend altogether.