Artificial intelligence can pick our stocks. But should investors be picking artificial intelligence?
AI has long been a popular theme in sci-fi movies, but its potential is now entering the real world as computers start driving cars, beating the world's best Go player, figuring out what we want to buy (in my case, apparently, a Lexus) and constructing investment portfolios.
It could end badly, of course. Singularity, or the point at which computers improve themselves at a rapid pace, can raise alarming questions about who's running whom – just check out the movie Ex Machina. But until then, investing in AI could be a good way of keeping the robots on your side and aligning your interests with theirs.
The best part? Though AI is starting to capture investors' imagination, the interest has yet to translate into runaway share prices and lofty expectations.
The stocks that are most closely associated with AI tend to be global behemoths that are pouring resources into technology that can give their main lines of business – from hardware to advertising to book sales – a competitive boost.
Google Inc., International Business Machines Corp., Amazon.com Inc., Microsoft Corp. and Facebook Inc. have become big proponents of AI, and recently teamed up to form a partnership to conduct research and set ethical parameters.
Some of the more intriguing uses make AI look fun. Google's AI Experiments, for example, can play a good game of Quick, Draw!, where a computer guesses the subject matter of your sketches remarkably fast. One day, these experiments could amount to something bigger.
But AI is also going mainstream with decidedly commercial applications that are powering IBM's Watson computing system and the data-crunching activities of Amazon.com and Facebook – not to mention Google's fleet of self-driving cars.
Buying one of these stocks certainly puts you at the forefront of artificial intelligence, either developed in-house or through an acquisition. However, it also means that your bet on AI could look like a hobby next to the thriving underlying businesses of selling ads, books and hardware – making these stocks look like long-term holdings for now.
Smaller firms get you closer to the robots and also look like potential takeover candidates – though the share prices can be volatile.
Since Goldman Sachs published its list of notable AI-related firms last year, at least two have been acquired: Opower Inc., a cloud-based analytics firm, was bought by Oracle Corp. in May; Marketo Inc., which develops marketing software, was bought by Vista Equity Partners, a private equity firm, in August.
Some of the remaining companies have enjoyed relatively strong gains over the past two or three years, but have seen their share price appreciation level off recently.
France-based Criteo SA and Britain-based WPP PLC, both advertising and marketing firms, have seen their shares rise more than 30 per cent each in recent years, but are up only about 9 per cent so far this year.
Others have slumped. Japan's NEC Corp., a leader in facial recognition and text analysis, has seen its share price slide 28 per cent from its recent high. Netherlands-based Mobileye NV, which develops collision warning systems for cars, is down 9 per cent this year and has been on a roller coaster ride for most of the past two years.
Diversification, then, might offer a better approach for many investors. The Global X Robotics & Artificial Intelligence Thematic exchange-traded fund (with the cute Nasdaq ticker: BOTZ) launched in September and provides one-stop exposure to 28 holdings, including SMC Corp., ABB Ltd., Intuitive Surgical Inc., Keyence Corp. and Mitsubishi Corp.
Two months into the fund's life, the units have risen just 2 per cent and net assets have grown to a mere $2.2-million (U.S.), suggesting something less than a mad-dash among investors.
Perhaps they are waiting for a robot to make the recommendation.