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What you need to know before investing in the AI boom

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Artificial intelligence (AI) will fundamentally change the way we live our lives, opening up a mind-numbing assortment of investment opportunities along the way.

While it's easy to predict the rise of AI itself, picking individual winners is a far more difficult task.

To help with that, Money asked Robert Francis from investing platform eToro to take us through the ins and outs.

investing in artificial intelligence stocks

What is AI?

Artificial intelligence is an emerging sector of technology focused on enabling computers, robots, machines, or other programmed mechanical devices to perform operations and tasks similar to learning and decision making in humans.

How will AI shape society now and in future?

It has long been speculated that robots will replace humans and their jobs, but in reality it's more likely that AI will be key in improving how we work, and simplifying the difficulty of our jobs.

Millions of people interact directly or indirectly with AI on a daily basis via personalised online experiences, AI-driven financial services, virtual assistants, gaming platforms, chatbots, mapping applications and a host of other software.

When AI takes over repetitive or monotonous tasks, it frees up the human workforce to do work they are better equipped for—tasks that involve creativity and empathy. Increased capacity for creative thinking can allow teams to focus on driving new innovations.

Minimising rote tasks can also result in an increase in happiness, job satisfaction and boost productivity levels.

From a safety perspective, using machines rather than humans for high-risk tasks has obvious benefits for workplace safety. In a broad sense, AI assistants can add a level of safety that acts as a safeguard when human error occurs. For example, AI-enabled vehicles (fitted with sensors like radars and lidars) are able to fill in blind spots, and predict issues ahead of time, improving our propensity to reduce road accidents.

The future of AI is endless, from self-driving cars being developed out of the US and China to concierge robots and even advances in medical practices.

What are your tips for Aussies considering investing in AI stocks?

Remember the risks involved

Like all stocks, investing in AI companies comes with risks. Consider the industry sector the company is developing AI technology for and the impact of that technology on the end user. While AI is relatively harmless in some sectors, in others there is a direct impact on human life.

Also consider the regulatory climate the company is operating in. For example, while it's legal for some autonomous delivery vehicles to operate in some locations, passenger vehicles are generally limited to human-supervised testing only.

The more practical problems that an AI company is planning to solve, the more risk exposure an investor has to contend with.

As with all stock investing, investors should always implement risk management strategies, to effectively manage the risks associated with investments. This includes hedging your investments with other lower risk stocks, diversifying your portfolio and setting realistic profit limits.

Adopt a long-term investment strategy

As AI often takes a long time to perfect, investors should take the opportunity to educate themselves about the future trends and adopt a long-term investment strategy in order to reap the rewards once a company's technology booms.

While the idea of quick cash can often entice market neophytes, this is unrealistic (and risky) and adopting a longevity mindset, especially in times of severe market volatility can be key to greater success.

Pick stocks that match your interests or passions

By investing in your passions and interests, you are more likely to understand how they best operate. Obsessed with robotics? Perhaps you should consider stocks in iRobot, or if you're into self-driving cars perhaps consider Chinese company Baidu.

But of course, do your homework first.

What role do AI stocks play in a portfolio?

AI is still an emerging sector stock, meaning many early stage companies are viewed by investors as having potential to grow and deliver returns in the future.  Emerging markets are also inherently higher risk, so while this may be a good chance to snap up a future winner, don't invest blindly.

Rather than pile completely into AI stocks, consider diversifying your overall portfolio with a percentage of more stable and reliable stocks as well as a percentage of emerging companies (like AI). A well-balanced portfolio should theoretically provide stronger returns than having your cash sit in a bank account, and should deliver a mix of short term returns (perhaps as a result of dividends) and long term value.

A smart investor spreads their wealth across multiple sectors such as technology, to biomedical or even entertainment, to ensure that all of their bases are covered just in case an industry experiences unforeseen losses.

How has the AI industry grown, both in Australia and globally?

AI is one of the fastest-growing markets in the world, with revenue expected to reach US$118.6 billion in 2025.

According to PwC, it is estimated that AI will make up 43 per cent of global economic growth in the next decade.

In another report released by the Australian government, digital technologies, including AI, would potentially be worth AU$315 billion to the Australian economy by 2028.

Australia currently employs over 663,100 workers in fields related to AI, and this is expected to grow to 758,700 workers by 2023, at a rate of 20,000 additional workers per year.

How has the pandemic affected AI?

As the COVID-19 outbreak continues to spread around the world, AI has been used in a variety of different ways to both battle the virus as well as control and adapt to this new normal

Companies and researchers have been using AI as a way to speed up treatments and vaccine discovery efforts. Big industry players such as American biotech Moderna have used AI to enable key virus breakthroughs in analytics and predictive modelling.

And it's not just medicine and the race to the vaccine for COVID-19 that makes AI so popular during the global pandemic. As a way to limit the amount of physical distancing in popular public places, Amazon Go Grocery uses AI technology to employ computer vision, sensor fusion and deep learning to remove the need for staffed checkouts.

A company in Denmark has also deployed autonomous robot cleaners to disinfect hospitals and medical facilities in China, and elder-care robots from ZoraBot have been designed to increase independence and reduce loneliness within the world's growing elderly population during the global pandemic.

Stocks to watch

Baidu

The largest provider of Chinese language internet search as well as other digital products and services, Baidu is committed to emerging business sectors such as AI and machine learning. Due to the recent outbreak, Baidu AI scientists have used their Linearfold algorithm to predict the secondary structure prediction for the COVID-19 RNA sequence, reducing overall analysis time from 55 minutes to 27 seconds, meaning it is 120 times faster.

Google Alphabet

Google's public holding company Alphabet was developed in order to enhance Google's AI-centricity and efforts to be more than just an internet services company. Alphabet's subsidiary DeepMind has put its AlphaFold system in place to create structure predictions of several under-studied proteins associated with SARS-CoV-2, the virus that causes COVID-19.

International Business Machines (IBM)

IBM's strategy with AI is to apply it where it can augment human intelligence, increase efficiency, or lower costs. In the healthcare industry, IBM's AI tech is being used to create individualised care plans, accelerate the process of bringing new drugs to market, and improve the quality of care. In the financial services industry, IBM is using AI to help clients with the task of regulatory compliance.

Nvidia

Nvidia is a leader in AI and acquired Arm Holdings from Softbank in September. Arm's AI offering is huge and Nvidia sees this as an opportunity to expand its AI offering. Nvidia recently announced the opening of an artificial intelligence centre in Cambridge. The company has said they are planning to propel themselves to global AI leadership. Although Nvidia is both best known for its graphics cards, it is planning AI to be a big part of its future.

Micron

Micron's technology is powering a new generation of faster, intelligent, global infrastructures that make mainstream artificial intelligence possible. Micron is usually known for its developments of memory chips, which is likely to be positive as the demand for AI increases. Back in 2019, Micron announced a comprehensive AI development platform to continue its move into the AI market.

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Robert Francis is the Australian managing director of multi-asset investing platform eToro.
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