AI’s rapid evolution is capturing investors’ imaginations and will benefit many businesses, but others will die in the crossfire.
The government says the debate around regulating AI needs the “broadest possible” involvement from the broadest possible segments of the community, from tech figures to the general public.
“Technology does need to work for us,” said Assistant Climate Change and Energy Minister Jenny McAllister.
“The way that we use technology is always a social choice … we welcome the tech community’s interest in how these matters are to be regulated and organised.”
As long as AI does not evolve into terminator-like machines wanting to wipe out humanity, the future looks bright for many stockmarket sectors – although some will face fresh pressures.
A trend is under way where companies that mention AI are rewarded by stockmarket gains. In mid-May online retailer Temple & Webster said it was ramping up AI, and its share price shot up 27 per cent in two days.
Shares in Telix Pharmaceuticals have jumped more than 50 per cent since April, when it bolstered its AI capability through an acquisition in Austria.
Nvidia, the US tech giant that makes specialist AI chips, has more than doubled its share price this year – up 30 per cent in the past month alone – amid AI mania.
Bell Direct market analyst Grady Wulff said sectors that would benefit greatly from AI included healthcare, materials and mining, and logistics “especially in the aftermath of the supply chain and logistical crisis that erupted post-Covid”.
Ms Wulff warned smaller cap companies that could not keep up with big competitors’ spending on AI might struggle, while giants Google, Microsoft and Nvidia “pile billions of dollars into the AI evolution”.
“Traditional retailers who have bricks and mortar store fronts like City Chic and Best & Less may also face some challenges,” she said.
Bell Direct’s Grady Wulff says smaller stocks may struggle against big-spending giants.
Tribeca Investment Partners lead portfolio manager Jun Bei Liu said local tech stocks such as NEXTDC, Appen and Megaport had rallied in recent weeks.
“AI is rapidly evolving so we are not sure what it can replace at the moment … it is an incredible tool for every sector,” Ms Liu said.
She said NEXTDC was the “purest play” to get exposure to rising demand for data centres, while machine learning company Appen had been doing it tough but it had contracts with global tech giants.
Investment platform Syfe’s country manager, Tim Wallace, said while ASX companies had “rushed to insert themselves into the AI news cycle”, Appen’s share price remained more than 90 per cent below its Covid highs, while Temple & Webster was more than 60 per cent off its Covid highs.
Mr Wallace said all companies were likely to be impacted by AI at some level “just as the advent of the internet rewrote the rules of company growth potential”.
He said there were questions about how much media and wealth management would be outsourced to AI, and also around the magnitude of AI’s disruption.
This explained the mammoth rally in Nvidia, which Mr Wallace described as “a pick and shovel play”.
“Nvidia is selling the chips that will power the much talked up AI revolution,” Mr Wallace said.
“How much is a shovel really worth though? Is it 208x earnings? Is it 38x revenue? Nvidia is one expensive shovel.”
Infinity Asset Management portfolio manager Dominic Mlcek said there was “no shortage of company management teams slipping buzz words like artificial intelligence and machine learning into their regular vernacular over the past few months on the back of the global phenomenon that is ChatGPT”.
An army of AI-powered terminators could really ruin your day.
His firm had counted at least 50 companies mentioning AI in earnings calls, trading updates, investor days and annual meetings, he said.
“We think it’s important for investors to remain disciplined and not get too far ahead of themselves.”
Infinity said companies to benefit included NextDC and Goodman Group, “which despite being an industrial property business has a handful of data centres in the pipeline for development in Japan”.
BetaShares senior investment strategist Cameron Gleeson said innovations such as AI tended to create a “winner takes all” environment where a small number of winners overshadowed a high failure rate of others.
“The few local IT names that have held themselves out to be leaders in the space are actually at risk of being disrupted themselves by the innovative technology,” he said.
Mr Gleeson said outsourcing business models appeared vulnerable to AI, and there was stock specific risk as current AI leaders might not maintain their position.
“Ultimately, while artificial intelligence is here to stay as a long-term megatrend, investors shouldn’t put their eggs all in one basket.”
Stockspot CEO Chris Brycki said investors could consider ETFs that spread their money across many different companies.
“You might get lucky buying individual stocks, but history shows that share market returns over the previous 100 years have actually come from just 7 per cent of shares,” he said.
“Investing has a history of looking at the next big thing. In the early 2000s it was a bunch of tech companies. Recently it was blockchain technology. These days, it’s AI.
“Our advice would be that if you did want to gain exposure to AI, only make it a small part of your overall portfolio.”
Analysts say most businesses will benefit from AI, but there will be casualties. Picture: iStock
INVESTMENTS TO WATCH
• Nvidia (US)
• Microsoft (US)
• Alphabet (US)
• BetaShares Global Robotics and Artificial Intelligence ETF (Aust)
• Global X ROBO Global Robotics & Automation ETF (Aust)
• NEXTDC (Aust)
• Appen (Aust)
• TSMC (Taiwan)
• Baidu (China)
• C3.ai (US)