Editor’s note: This article contains information only. It is not intended as general or personal advice. Your Money recommends seeking professional advice specific to your personal circumstances.
We know that artificial intelligence (AI) is set to radically change our lives and the way we work, but what kind of impact will it have on your investments?
It may once have been a subject of science fiction, but today machines are taking over many of the tasks we once needed human intelligence to carry out – a movement loosely referred to as AI.
And as machine intelligence becomes more advanced, new companies will begin to dominate Australia’s stock exchange even as old companies are pushed out, according to investment adviser Chris Macdonald of Morgans.
“Companies providing AI solutions will have a high demand for their services and the best of breed will be very successful companies [in terms of] shares and investments,” he told YourMoney.com.au.
“Companies that invest in AI for their organisations will be more competitive with their peers when it comes to knowing their customers and driving efficiencies at scale in their businesses.”
While AI has been reasonably slow to grow in the financial sector, it’s also set to impact the way we select and manage our investments, according to Kanish Chugh, head of sales at ETF Securities.
That’s because it will give companies and fund managers the ability to better analyse company and economic data to make better financial decisions.
“The growth of AI in this industry is inevitable and can only be seen as a positive as it provides the firm the ability to analyse larger sources of data,” Chugh told YourMoney.com.au.
Which sectors should you back?
Both the technology and industrial sectors are set to thrive, Macdonald predicts, with AI set to “turbocharge the creation of new products and services.”
That means software and hardware technology companies that provide AI services and products could benefit the most, along with the major global tech companies.
“The big global companies like Amazon, Microsoft, Google and Facebook, who are investing the most in AI, will be the winners,” Macdonald predicts.
However, Chugh says that many other industries will also benefit from AI as their services become more efficient.
“In the finance sector, banks are using machine learning to identify suspicious activity in real time and prevent fraud. In the medical industry, we are seeing it being used to analyze and compare millions of patient records to identify trends and improve diagnosis and treatment,” explains Chugh.
“Retailers are using it to personalize customer experiences at the individual level. Machine learning is also being used to identify new energy sources, accelerate supply chains, and improve national security.”
What kinds of companies will lose out?
As technology companies race to position themselves for an AI future, some sectors will inevitably fall behind or find their services less useful.
Industries where repetitive human tasks or data analysis can be replaced by smart machines are all likely to see profits driven down, according to Macdonald.
That includes market research companies, parts of the finance industry, the legal sector, manufacturing and call centres.
But Chugh says ultimately the competitiveness of a company will come down to how well it can adapt to change.
“The robotics, automation and AI revolution that we are seeing is like any major revolution we have had where disruption has occurred but a new normal is created,” he explains.
While he says the overall result will be a positive one, the disruption that AI will likely cause is an important consideration.
How can you invest in AI?
It’s one thing to understand that AI is the future, it’s quite another to throw your investments into new and emerging technology companies.
Anyone looking to invest in AI-focused stocks will need to have a solid understanding of what it will mean for the company, not just today, but over the next decade.
“It’s about research, research, research, and in the absence of that, take a long-term view,” Macdonald told Trading Day.
“I think anyone investing in a [technology] stock really needs to understand what problem they’re solving, whos buying them and who they’re competing against.”
“Technology is a three, five [or] 10-year play and you need to invest accordingly, and you need to be patient,” he advises.
For anyone that doesn’t have a strong understanding of AI technology or the kinds of companies that are backing it, Macdonald says investing in a general technology-themed ETF is a good idea.
For the global FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) Macdonald suggests a global ETF or a local technology ETF that includes a mix of domestic WAAAX and global tech stocks.
Watch the video above for more about investing in tech stocks.