There are a significant number of investment opportunities in the artificial intelligence (AI) space, but investors will have to be patient to see those investments pay out, according to portfolio managers at Columbia Threadneedle Investments.
As AI captures the imagination of individuals and businesses alike, the Boston-based firm hosted a webinar this week highlighting areas where it made sense to invest in AI. During the webinar, the presenters pointed out that AI is still in its infancy.
“I think it’s really important for investors to understand that the impact of these investments and opportunities may take years for most companies to monetize and subsequently turn into additional sales opportunities or productivity gains,” said Tiffany Wade, a senior portfolio manager at Threadneedle.
The reason for that delay is there is a lot of preliminary work firms must conduct around AI, she added. Companies will have to gather their own data before building and testing AI models. There also needs to be a vetting process to test the security and utility of the models, Wade added.
That’s not to say that there are no current chances to invest in AI. Threadneedle is focusing on groups that are building the infrastructure for AI.
“In the short and medium term, we want to follow where we think the dollars are going,” Wade said. “Right now, the biggest opportunity is in the picks and shovels of AI.”
The current opportunities include cloud providers and data centers, she said. The companies looking to launch an AI service will need the services of cloud providers to run those applications. Another option are firms that are creating the building blocks of AI, such as those developing foundations, models, or model hubs, Wade said.
Another area that investors can focus on is internet security. As more data is transferred and used by AI applications, there will be a growing need to protect potentially sensitive information, according to Wade.
“Companies face traditional security threats such as data breaches but will also face new threats such as malware that could potentially disrupt or alter AI model output or enhanced security threats that are driven by AI,” she said.
Another option will be companies that can incorporate AI into their business platforms to improve efficiency and productivity. This could span companies over a wide variety of sectors, including companies that have cost-heavy help desks or those that incorporate AI into their businesses, Wade told the audience.
Among the industries that can benefit from AI is agriculture, where farmers can use AI in smart farming, said Dave Egan, a senior equities analyst at Threadneedle. AI will know where and how many seeds to plant, as well as how best to use pesticides and fertilizer. The technology will help farmers increase crop yield, Egan explained.
In marketing, AI is being used to generate ads, which brings down the cost of advertising and allows companies to tailor their advertising and marketing to a specific audience, according to Egan.
The portfolio managers said advisors and investors should be cautious before putting their money into a particular company.
“One needs to be wary of pretenders versus contenders,” said Rahul Narang, another senior portfolio manager at the firm. “There are companies that will see the benefit more immediately from AI … and then there are companies that will see it much later in time.”
Threadneedle has been investing in AI for years, but has done so in a disciplined manner, which is how others should approach the issue, he said. An advisor or investor needs to conduct their research on a firm since many make AI references and partnerships during earnings calls, Narang explained.
When conducting research on a company, advisors should investigate if a company has a competitive moat around the business and if they understand how their product will differ from others in the market, he said. The company should also understand the competitive landscape it is in.
There are still risks involved when it comes to AI investing, according to Narang. The first has to do with regulations. As it is a new technology, it is unclear what rules will be implemented and how that will impact AI, he said.
Data ownership is also an issue, he said. There will be a question as to who owns AI data and who is ultimately responsible for it, he said.
Narang cautioned advisors and investors not to get too engrossed by the marketing pitch of a company or to fall for trends when making an investment decision.
“I remember during the late 1990s … a company would add dot-com to their company name and the stock would go up multiple times,” he said. “It’s important not to get caught up in the hype of AI marketing.”