Identifying investment opportunities in AI

Artificial intelligence (AI) has emerged as this year’s hot investment, driven by dramatic advances that have made the technology more applicable than ever.

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Robertson Velez, portfolio manager at CIBC Asset Management, said these developments are providing opportunities for long-term investors who have the patience to sift through the technology and position their portfolios accordingly.

While AI is not new, Velez said “the technology has progressed to the point where AI can now do very useful things.”

The progress made in generative AI, in particular — the best known example of which is OpenAI’s ChatGPT — is expected to have a significant impact on productivity, he said, fundamentally transforming how businesses interact with and serve their customers.

Within generative AI, Velez identifies three key areas of expansion.

The first is in productivity tools, such as word processors, spreadsheets, graphics and coding, which can incorporate generative AI support to streamline content creation.

Second, he said generative AI will allow consumers to pose more complicated questions and receive more comprehensive answers. “This has the potential to revolutionize online advertising and how consumers and businesses interact online,” he said.

Lastly, Velez said generative AI allows businesses to leverage the vast amount of data they collect, which has the potential to redefine customer interactions and improve services.

Reflecting on previous technology-led booms, Velez advises investors to maintain a clear view of the potential of new technologies in both the short and long term.

However, he cautions that there’s likely to be short-term volatility in the market. Investors need to navigate the noise and position themselves for long-term gains by understanding the potential of AI and the companies best positioned to benefit.

“In previous technology revolutions, investors have often fallen into the trap of overestimating the short term and underestimating the long term,” he said.

In the case of the internet, for example, Velez said investors were overly excited about its promise, which led to the dot-com bubble. But over the next two decades, “the realized potential of the internet has exceeded the early hype,” he said.

Velez believes the same will be true for AI, which, over the long term, has the potential to revolutionize the way we live and work to the same degree as the internet and the smartphone.

“The growth will be exponential and will likely exceed what we anticipate today,” he said.

Expanding on investment opportunities, Velez mentioned Microsoft Corp., Alphabet Inc. and Nvidia Corp. as companies leveraging AI’s potential.

Microsoft has integrated ChatGPT into its suite of productivity products, such as Office, allowing for enhanced content creation, and Velez said it could be a game-changer for internet search.

“I think Microsoft has that potential to change the way that users interact with search — and advertisers interact with users through search — to do better targeting and thereby increase the monetization,” he said.

However, he still thinks Google (parent company Alphabet Inc.), which has more than 90% of the search market today, is best positioned to capture opportunities in search.

“With generative AI, [Google] is likely to be able to improve monetization of that massive search user base and benefit from it over the long-term,” he said.

Chipmaker Nvidia, whose stock has soared during this year’s AI boom, is a critical player because of its near-monopoly in AI infrastructure, Velez said.