ChatGPT is the hot topic around the world. It’s therefore no surprise investors are now wondering whether generative AI (artificial intelligence) is the next big thing in technology, and if so, which companies are best positioned to ride it.

After years of research, it appears AI is reaching a tipping point, capturing the imaginations of everyone from students saving time on their essay writing to leaders at the world’s largest tech companies. Excitement is building around the possibilities that AI tools unlock, but what exactly these tools are capable of and how they work is still not widely understood.

This, in our view, suggests that an investment fund with a firm focus on the wider AI world is the best way to invest right now, if you’re so inclined. Shares’ top pick is the WisdomTree Artificial Intelligence ETF (INTL), more on which later.

A lot has happened in the past month, with  Microsoft (MSFT:NASDAQ) providing $10 billion of financial backing for OpenAI, the not-for-profit developer of ChatGPT set up by Elon Musk, his fellow PayPal (PYPL:NASDAQ) founder Peter Thiel, LinkedIn co-founder Reid Hoffman, and several others.

Microsoft’s ambitions to integrate ChatGPT into its Bing search engine and collaborate on future development projects down the line
could be evidence of an accelerating AI arms race as the giants of technology tussle for AI pole position.

Last week, shares of Chinese AI designer Baidu (9888:HKG) jumped 15% as the company said it will launch its own AI chatbot project named ‘Ernie bot’ in English, or ‘Wenxin Yiyan’ in Mandarin. Baidu said it will likely complete internal testing in March before being made public.

Google, owned by Alphabet (GOOG:NASDAQ), made its move in the brewing AI war by unveiling a suite of AI enhancements to its maps and search functions, including lengthy textual responses to subjective queries. Unfortunately, the 8 February launch event for Google’s ChatGPT competitor Bard descended into farce, swiping more than $100 billion off Alphabet’s market value.

Bard confidently asserted that the James Webb Space Telescope snapped ‘the very first image of planet outside our solar system’, or exoplanet, although the milestone was hit 17 years before the JWST launched. Doh!

Even though this was embarrassing for Alphabet, Bard’s confident wrongness isn’t uncommon in generative AI, and ChatGPT’s ability to be boldly inaccurate is already well documented.

Critics will say this demonstrates the tools aren’t ready to be integrated into search engines yet. But teething problems are par for the course in new tech design and these sorts of mistakes can be tested out over time, and reliability and value improved as the AI systems ‘learn’.

According to Reuters, Chinese e-commerce companies JD.Com (9618:HKG) and Alibaba (BABA:NYSE) are also working on plans to integrate generative AI into products and services.

Generative AI systems work by analysing patterns in a huge mass of text and making predictions about what words come next, rather than analysing and synthesising ideas, like our brains do.

Applications are, potentially, wide-ranging:

IMAGES: Generative AI can create new images based on existing ones, such as creating a new portrait based on a person’s face or a new landscape based on existing scenery

TEXT: Generative AI can be used to write news articles, poetry, and even scripts. It can also be used to translate text from one language
to another

AUDIO: Generative AI can generate new music tracks, sound effects, and even voice acting

This works well in some environments, not so well in others. The current capabilities of ChatGPT and its ilk might well help sleep-deprived college students ace term papers, but can it write a joke?

Shares put this to the test via ParagraphAI, one of the many chatbot apps available to download for free on the Google Play store. It is powered by ChatGPT.

We asked ParagraphAI to create a joke involving a nerd, a giraffe and a telescope. Here’s what came back:

A nerd was walking through the zoo when he noticed a giraffe looking through a telescope. The nerd asked the giraffe what he was doing and the giraffe replied, ‘I’m looking for intelligent life, but so far I haven’t found any!’ The nerd laughed and said, ‘That’s because you’re looking in the wrong place!’

OK, so comedians probably won’t be replaced by generative AI anytime soon, but many industries are already being transformed. Take the standard call centre, for example. As you’ll know from contacting your bank or broadband provider, call centres are already packed with automation, where platforms direct your enquiry by voice responses, or by punching numbers into the keypad.

Such systems, provided by the likes Twilio (TWLO:NYSE), Zendesk (ZEN:CVE), Five9 (FIVN:NASDAQ), and UK-listed pair Netcall (NET:AIM) and Eckoh (ECK:AIM), are efficient, if not always satisfying for customers, but it does free up time for staff to focus on the soft skills they are usually better at rather than mundane tasks that would send most people to sleep.

The same goes for RPA, or robotic automation process software, releasing workers from the data input treadmill. In this space UK investors may recall Warrington-based Blue Prism, a UK-listed company until November 2021 when it agreed a £1.2 billion private equity takeover. There’s also US-listed UiPath (PATH:NYSE), and the privately-owned Automation Anywhere.

CAN CHATGPT HELP WITH INVESTING?

Focusing on industries such as healthcare, industrials, consumer goods and financials might be sensible options outside of the tech sphere most likely to tap substantial benefits from AI, through efficiency gains or new revenue opportunities.

For example, we’d expect some bigger hedge funds and asset management firms to experiment with AI. How this will impact the asset management industry, or retail investors for that matter, is anybody’s guess, but it is bound to affect it in a big way. You might draw parallels with quant-driven strategies that are now responsible for a big proportion of institutional assets under management.

That said, it seems likely that people will stay in charge of decision-making, given the limitations (certainly today) of using ChatGPT for investment analysis. Shares asked the chatbot what will be the most rewarding way for retail investors to invest in generative AI, and ParagraphAI gave the following answer.

‘The most rewarding way for retail investors to make investments in generative AI is to identify and invest in companies that are actively researching and developing new generative AI technologies.

‘These companies are likely to be at the forefront of the industry and have the potential to generate significant returns on investment.

‘Additionally, retail investors should look for companies that are actively collaborating with other industry leaders to develop new AI-based products and services. By investing in these companies, retail investors can benefit from the growth of the industry and the potential for high returns.’

While this was a broadly coherent response it lacked any detail. It seems journalists who write about stock market investments are safe, for now.

We would expect big tech companies to dominate early AI development. The likes of Microsoft, Alphabet, Meta Platforms (META:NASDAQ), Amazon (AMZN:NASDAQ) and Apple (AAPL:NASDAQ) have deep enough pockets and vast enough cash flows to comfortably fund new ideas long before they start making meaningful sales and profits.

Chip designers, such as Nvidia (NVDA:NASDAQ), Qualcomm (QCOM:NASDAQ) and Micron Technology (MU:NASDAQ), are already designing the semiconductor infrastructure to allow AI to happen, so represent another way to play the chatbot/AI theme.

There are also bound to be important AI companies that haven’t even been founded yet, while others will see AI completely change the foundations of their businesses, possibly in unforeseen ways.

Let’s not get ahead of ourselves. Despite all the hype, AI is still in its infancy and faces years of further development, and investors have time on their side.

The blaze of excitement we are witnessing now is typical of new tech waves, starting with huge initial excitement, followed by the buzz dying down as it dawns that progress will take longer, and need much bigger funding than previously anticipated. Gradually, interest picks up again, usually in a more measured way.

Cathie Wood’s Ark Invest (ARKK:NYSEARCA) is right behind AI. The tech fund believes that as AI chatbots become more sophisticated and able to process queries at scale, costs will decline, enabling mass adoption. Ark believes that by 2030 ChatGPT will be capable of handling 8.5 billion queries per day, the capacity at which Google Search currently operates.

We’ll let readers decide for themselves whether Cathie Wood’s backing is a blessing or a curse for AI.

SHARES’ TOP PICK FOR INVESTING IN AI CHATBOTS

WISDOMTREE ARTIFICIAL INTELLIGENCE ETF (INTL) 

Price: £40.945

Last year was the ETF’s first negative calendar year of returns since it was launched in November 2018, but even after 35% decline through 2022, it has still more than doubled in price since inception. The fund is more than 20% ahead so far in 2023.

The WisdomTree Artificial Intelligence ETF is benchmarked to the Nasdaq CTA Artificial Intelligence index whose constituents cover wider the AI theme.

For example, the ETF provides exposure to Autostore (iIG:FRA) which is a French warehouse automations specialist, PROS Holdings (PRO:NYSE) which provides a SaaS (software-as-a-service) platform that helps retailers understand consumer habits, and Workday (WDAY:NYSE) which offers enterprise applications in the cloud.

The portfolio is diversified across the globe, with 57% in the US, about 20% in Japan and Taiwan, the rest elsewhere. Ongoing charges are 0.4%.

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