Jonathon Curtis 16 May 2019
It’s hard to ignore the rise of artificial intelligence, or AI. It’s already becoming part of our daily lives. We can now talk to a machine and ask it to do the weekly shop, order a taxi, or translate a foreign language. But that’s just the tip of the iceberg.
In the future we might not even have to ask. A machine could learn our preferences and do things for us before we’ve even thought about it.
The pace of technological change is faster than ever before and the foot is still hard on the accelerator. Except soon we might not be driving, as self-driven vehicles are one of many new AI developments aimed at improving our lives.
What exactly is AI?
AI is a system that creates knowledge or intelligence without human involvement. People call it all kinds of things, like ‘machine learning’ or ‘cognitive computing’. But essentially they all point to the same thing. A computer thinking for itself.
Machines are being developed that can ‘think’ differently to humans and even outsmart us. The potential for positive change is enormous. In the future AI could solve climate change, end poverty and cure disease.
These are all just concepts for now though, and could be many decades away if they become reality. For investors, taking advantage of AI involves investing in companies developing technologies that are available now or will be available in the near future.
How to invest in AI
As with any new exciting technology, there’ll be lots of companies competing to develop the ‘next big thing’. Some will inevitably fail and disappear without a trace. And there’s no guarantee that even the survivors will make good investments. That’s why spreading your investments in AI is a less risky strategy. One way to do this is with a fund investing in AI companies.
AI is a relatively new area to invest in though. We don’t think there are any AI-specialist fund managers with long enough track records to give us enough confidence to invest in them. It’s also a niche area to invest in. That limits the number of companies to consider and makes it riskier than investing in a broader sector.
There are some diversified funds and investment trusts we like that invest in companies harnessing the potential of AI.
This article isn’t personal advice, if you’re not sure if an investment is right for you please ask for advice. All investments can fall in value as well as rise so you could get back less than you put in.
Giles Hargreaves and Guy Feld invest in some of the smallest companies in the UK. Lots of them are pioneers in exciting and innovative industries.
Such small companies have lots of room for growth but they’re higher-risk investments than larger companies. That’s why the managers invest in a large number of companies, to spread around the risk of a few companies doing badly.
The managers invest in some companies exploiting the power of AI. They include Albert Technologies, which uses AI to quickly and efficiently connect buyers and sellers of online adverts.
Osirium has developed technology that automates high-volume IT security tasks, increasing speed and reducing costs.
Through its Polaris acquisition, TP Group is developing AI solutions for military and intelligence organisations, including autonomous minesweepers.
We think Marlborough Nano-Cap is a good way to gain exposure to some of the new ways AI’s being used. It invests in lots of other small companies involved in other technologies and sectors though, so there’s lots of diversification on offer.
Smaller companies can be volatile, so we think it’s best to view the fund as a longer-term investment.
James Anderson and Tom Slater invest in companies they think could grow rapidly over the long-term. Lots of these are disrupting traditional industries with innovative products and services. They invest in both large companies and higher-risk smaller ones they think could grow into much bigger businesses in the future. They also invest in some higher-risk emerging markets.
Some of the companies they invest in are well-known for their development of AI. Amazon’s using the data collected by its Alexa enabled ‘smart speakers’ to sell and advertise to its customers more intelligently. Netflix and Spotify’s software is getting better at ‘knowing’ what movie or song you’d like. Tesla’s developing autonomous vehicles that might one day be safer than cars driven by humans.
We think Scottish Mortgage Investment Trust is a good option to invest in some of the popular companies involved in AI development. The trust itself is also popular, currently trading at a 3% premium as I write. The managers use gearing (borrowing to invest) and can use derivatives, which both add risk. More details can be found in the latest annual reports and accounts.