George Lee, partner and Global Technology Chief at Goldman Sachs said this week on CNBC that Artificial Intelligence is on it’s way to becoming huge in the not very distant future, (he really didn't say huge - I've got Donald Trump on my mind), but that's what he meant. He said that three things in the technical world must and will further develop in order to facilitate this future:

1. manage at scale. (Refers to the infrastructure or all the components that play a role in IT-enabled operations).
2. chip technology
3. compute stack Wikipedia says this is an abstract data type that serves as a collection of elements that have two operations; a push, and a pop. Sometimes a peek is also added. (Ah yes, now I understand)

George Lee was also the guy who engineered the $50 Billion Facebook deal so he knows what he's talking about.

What is AI?

AI to most of us is still a rather vague term, is it a robot, is it virtual reality? It's actually way more than that if you look again at Wikipedia;
"AI is a flexible rational agent that perceives its environment and takes actions that maximize its chance of success at some goal. Colloquially, the term 'artificial intelligence' is applied when a machine mimics 'cognitive' functions that humans associate with other human minds such as 'learning' and 'problem solving'." So, it's like a person, only it doesn't have to be born or go to school, that must be where the “artificial” comes in.

Investing in AI.

OK, so how do we profit from AI? Research turns up that the known players in the field are all the big boys; Facebook, Amazon, Alphabet, Apple, Microsoft, IBM, Baidu, Boeing, and Tesla. These companies all do a million other things as well so it’s difficult to judge how much actually goes into AI, and what the risk and reward would be. Nvdia (NVDA), seems to be the only large pure play AI company, and it’s doing very well trading at an all time high of $72 with the greatest growth coming since March of 2016. NVDA is a favorite of the institutions with 87% of the shares and 92% of the float being held by 547 institutions, Fidelity and Vanguard being the largest holders.

Among the ETF’s that claim the AI label are XT, BOTZ and ROBO, but when you look closely at their makeup, it becomes clear that they are mostly involved with industrial and non-industrial robotics, and automation, and not directly connected to the three things that George wants to see grow, (although AMD is in ROBO’s top 10 holdings). It’s interesting that you don’t see many of the big names in these ETF’s, where you do see them is in mutual funds and in special stock bundles such as those offered by Motif. All those big names appear in some combinations.

Conclusion:

There are probably some small firms specializing in AI out there that have not yet been gobbled up, but if they’re any good they might be already gone. It’s hard to tell where NVDA will go from here, it would be nice to see a slight pullback in order to get in. For us as small investors, we need to watch the big boys and see who jumps out to take the lead.

 


Comments

11/15/2016 5:32pm

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