Investing in the AI Boom

"Artificial Intelligence," or simply "AI" is a catchphrase these days. The concept of having a computer perform tasks using human-like intelligence and discernment makes it feel like the next chapter in a sci-fi novel is here.

The use of AI seems to have found practical use in almost all sectors of our economy. From commercial use, defense, entertainment, and even politics, AI has revolutionized the way we do things daily. AI supported machines can now do human activities such as learning, reasoning, self-correcting, and even developing creativity. There are several types of AI: machine learning, deep-learning, language processing (such as ChatGPT), and generative AI among others. The business applications of such game-changing technology are wide and will have a positive impact on economic productivity. As just one example, ChatGPT (one of the fastest growing AI driven apps of all time) is already helping banks with client interactions.

Since the business applications of AI are vast, the best way to invest in AI is through company specific stock or a managed fund that holds the stock of companies that are in position to benefit from AI. Some companies will actively participate in developing AI, and other companies may benefit from adopting AI in their processes. Companies like Microsoft, Apple, Alphabet, Meta, and Nvidia have been investing in developing AI technology for years. Other companies have been supporting the AI business with semiconductors, cloud computing, software infrastructure, etc.

Is the current AI hype the next tech bubble? As investors, we look to AI to drive growth. It is true that AI stock prices have skyrocketed in the last 12 months and some of the AI company stock may feel expensive, but we are not calling for a "peak." Artificial Intelligence, just like the internet, mobile phone, microprocessors, is poised to continue changing the way we do business with applications beyond our imagination. And, like the internet, AI will aid productivity within the economy. But we must be cautious — a lesson learned from the nineties' dot-com bubble is that corporate profits benefited, but were not always sustainable. From an investment standpoint, we strive to stay diversified in terms of exposure to different sectors and to avoid portfolio concentrations that may experience a correction down the road. At the same time, investors should look for quality when choosing a company to invest in. Both factors suggest some exposure to well-vetted companies that are effectively generating or using AI.

Overall, analysis can be complex when you need to consider factors such as cost, growth, taxes, research, etc. Of course, everything is simplified when you hire a manager to do that risk assessment for you. Please reach out to your relationship or portfolio manager in regard to your personalized AI investment approach.

Meet Rodrigo Huerta, CIMA^® »

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This information is intended to be educational in nature, and not as a recommendation of any particular strategy, approach, product, security, or concept. These materials are not intended as any form of substitute for individualized investment advice. The discussion is general in nature, and therefore not intended to recommend or endorse any asset class, security, or technical aspect of any security for the purpose of allowing a reader to use the approach on their own. You should not treat these materials as advice in relation to legal, taxation, or investment matters. Before participating in any investment program or making any investment, clients as well as all other readers are encouraged to consult with their own professional advisers, including investment advisers and tax advisers.