Ever since ChatGPT was released in November 2022, artificial intelligence has dominated conversations in boardrooms across America. Some stocks, like Nvidia (Nasdaq: $NVDA) and SMCI (Nasdaq: $SMCI) have had amazing rallies. This has caused some investors to insist that AI is a bubble. But, analysts at Morgan Stanley anticipate that AI will become a $3 trillion industry in the next few years – which speaks to the number of companies that will lean into AI investing over the coming years. 

AI investing is a vast topic, as artificial intelligence has the ability to impact dozens of different industries and just about every company in the world. In this article, I’ll break down how you can take advantage of the modern-day gold rush that is AI investing.

Why Invest in AI?

Artificial intelligence is such a groundbreaking technological breakthrough that many analysts are comparing it to the invention of the internet or smartphone. In other words, we could be at the beginning of another period of megagrowth. But, AI will not necessarily be good for every single industry and company. Some companies will leverage AI successfully and thrive over the coming years. Meanwhile, some companies will resist AI and slowly fall behind. Finally, some industries will be driven out of business altogether thanks to AI.

Part of what makes AI so exciting is that nobody knows for sure how this new tech will be used. People can already use AI to create high-quality text, images, sounds, and video. But, the implications of this remain to be seen.

For example, OpenAI announced that its newest chatbot, GPT-4, passed the bar exam and scored in the 90th percentile. If GPT-4 can pass the bar exam then will we even need lawyers in the future? Will law practices go out of business in the coming decade? While this is unlikely, questions like this are being asked all over the country.

Where to Start With AI Investing

When most people think of AI investing, their mind jumps to chatbots like OpenAI’s ChatGPT or Anthropic’s Claude. Unfortunately, both of these companies are private so you are unable to invest in them. But, a few public companies own shares in these companies, so you can still get exposure by buying stock in these companies. Other than that, there are a few main companies that you’ll need to know about when getting started with AI investing: 

Leading AI Stocks

The phrase “AI stock” is a bit vague. After all, companies leverage AI in different ways. But, these are the stocks that are most commonly associated with artificial intelligence:

  1. Nvidia (Nasdaq: NVDA):  Nvidia is a software company that designs graphics processing units (GPUs) and application programming interfaces (APIs) for high-performance computing systems. Traditionally, Nvidia’s tech was used for gaming (and it still is). However, many companies rely on Nvidia’s software to power large language models (LLMs) and other AI applications.
  2. Super Micro Computer Inc (Nasdaq: SMCI): Supermicro is one of the largest producers of high-performance and high-efficiency servers. Artificial intelligence requires a ton of processing power, and SMCI provides companies with the servers to help AI run smoothly. 
  3. Qualcomm (Nasdaq: QCOM):  Qualcomm creates semiconductors, software, and services that companies can use for AI. To use Qualcomm’s own words, “We are inventing, developing, and commercializing power-efficient on-device AI, edge cloud AI, and 5G to make this a reality.”
  4. ARM Holdings (Nasdaq: ARM): ARM is a semiconductor and software design company that creates CPU cores that companies often use to power AI applications. 
  5. Leading Tech Companies: Most of the world’s leading tech companies are investing heavily in AI. The different AI applications are growing too quickly to name. But, for the most part, the world’s biggest tech companies are deploying AI across their existing services to improve them. These companies include Microsoft (Nasdaq: MSFT), Google (Nasdaq: GOOG), and Amazon (Nasdaq: AMZN). Notably, Apple (Nasdaq: AAPL) has not announced any major AI moves yet. But, you can bet they won’t be far behind.

These are just a few of the companies that will be at the forefront of the AI arms race over the coming years. All of these companies either provide the tech that powers AI or stand to benefit the most from implementing AI into their core businesses. But, as I mentioned, there are dozens of ways to benefit from the rise of AI.

Another way to take advantage of the AI wave is to invest in industries that stand to benefit or get hurt by AI. Consider this: when Apple first released the iPhone, it provided a massive tailwind for Facebook (Nasdaq: META). Meta’s business surged thanks to the iPhone since people could now access Facebook on the go. But, on the flip side, the iPhone spelled disaster for Blackberry (Nyse: BB). 

So, the question is: which industries will be disrupted the most by AI in the coming years?

5 Industries That Will Benefit from AI 

McKinsey estimates that AI could enable labor productivity growth of 0.1 to 0.6 percent annually through 2040. Generative AI could add the equivalent of $2.6 trillion to $4.4 trillion annually to the global economy. But, some industries will likely see the bulk of that productivity gain. For example, McKinsey predicts that banking, high tech, and life sciences are industries that will see the most benefit.

I’ve brainstormed a few industries that stand to benefit from AI. The following companies could potentially see outsized returns over the coming years if they implement AI to their advantage. Before jumping into it, please remember that these are just my own hypotheses. 

Here are 5 industries that will benefit from AI:

  1. Industries that make AI tech: This is a bit of a no-brainer. But, companies that produce AI technology will stand to gain the most. These companies aren’t digging for gold – they’re selling shovels. These companies include Nvidia, Taiwan Semiconductor (Nyse: TSM), SMCI, Intel (Nyse: INTC), IBM (Nyse: IBM), and Advanced Micro Devices (Nasdaq: AMD).
  2. Entertainment: AI will make it significantly easier to create movies and other forms of entertainment. AI can be used to provide dialogue, create images, and even spit out full video scenes. Movies that used to cost billions to produce will likely cost just a fraction of the price. This could provide a tailwind for companies like Disney (Nyse: DIS), Netflix (Nasdaq: NFLX), and Warner Bros Discovery (Nasdaq: WBD).  
  3. Cybersecurity: AI will likely lead to a rise in cybercrime since it makes it so easy to create fake images, voices, or written dialogue. To combat this, companies will need to double down on their cybersecurity, which could benefit providers like Crowdstrike (Nasdaq: CRWD), Palo Alto Networks (Nasdaq: PANW), and Cloudflare (Nyse: NET).
  4. Business Productivity Tools: According to McKinsey’s study, 75% of AI applications will fall between these four categories: customer operations, marketing and sales, R&D, and software engineering. This could provide a sales boost for companies that offer these products, like Salesforce (Nyse: CRM), WorkDay (Nasdaq: WDAY), ServiceNow (Nyse: NOW), and Oracle (Nyse: ORCL).
  5. Gaming: Similar to the movie industries, the rise of AI will make it much easier to create high-quality games. AI could improve the quality of video games while also making them cheaper to produce. This could benefit providers like Take Two (Nasdaq: TTWO), Microsoft (owner of Activision Blizzard), Electronic Arts (Nasdaq: EA), Tencent, and Nintendo.

Companies in these industries could be poised for outsized growth over the coming decade. Now, let’s examine the other side of the coin.

4 Industries That AI Will Hurt

Artificial intelligence is capable of doing lots of tasks, which means that some companies will get replaced by AI. If you’re looking for another way to get started with AI investing, you can potentially benefit from betting against these companies over the coming years:

  1. Online education companies: With AI, everyone has access to a virtual assistant who knows almost everything and can teach it to you. Due to this fact, there’s little need to pay for online education. With this in mind, expect a decrease in sales for companies that sell online courses like Coursera (Nyse: COUR) and Chegg (Nyse: CHGG).
  2. Tax Filing Companies: This one might be wishful thinking on my part. But, it’s easy to see a world where AI can analyze your bank statements and file your taxes for you. If this materializes then there would be no need for companies like H&R Block (Nyse: HRB) or TurboTax (Nasdaq: INTU).
  3. Traditional Retailers: As AI improves the online shopping experience, traditional retailers could face challenges. This may provide a headwind for the likes of Macy’s (Nyse: M), Nordstrom (Nyse: JWN), and other companies that rely on in-person shopping.
  4. Consulting: If AI can spit out answers to almost any question, will companies still need to hire consultants at $500 per hour? Likely not. This could lead to declining sales for companies like Accenture (Nyse: ACN).

The Future of AI Investing: What Industries Are Next?

If we go one step further, AI will likely lead to the creation of new technologies. AI allows for computing power that was not possible previously. This means that AI could pull fringe technologies into the mainstream and finally make them commercially viable. Here are three industries that AI could supercharge over the coming years:

  1. Humanoids: Human-style robots have been a sci-fi fantasy for decades. But, AI could be the final catalyst that turns humanoids from a futuristic technology into a reality. If you need further convincing, consider that Jeff Bezos, Nvidia, and OpenAI have all invested in Figure – a humanoid startup valued at $2.6 billion. At this moment, humanoids look like the next natural progression of AI technology. The next decade could be the time that humanoids finally enter society. Amazon and Tesla (Nasdaq: TSLA) are two of the only public companies that are currently working on humanoids
  2. Self-Driving: Self-driving requires an immense amount of computing power. Self-driving cars need to analyze thousands of bits of information and make decisions in split seconds. Again, this is another tech that could finally be pulled into the mainstream thanks to AI. Self-driving cars are already on the streets in some parts of the country. The current leading self-driving car companies are Waymo (mainly owned by Google) and Cruise (mainly owned by General Motors).
  3. Renewable Energy: Renewable energy is another industry that stands to benefit from AI. AI can help with tasks like optimizing energy generation, distribution, and consumption. This could provide a tailwind for companies like NextEra Energy (Nyse: NEE) or Brookfield Renewable Corp (Nyse: BEPC).

 

If you’ve made it this far in the article, I just want to thank you for taking the time to learn more about AI investing with me. Again, these are just my hypotheses for which companies stand to benefit (or get hurt) the most from AI. But, we are likely at the very beginning of a massive megatrend that will upend the world over the coming years. My challenge to you is this: don’t just take my ideas at face value. Instead, try to poke holes in my reasoning to generate your own ideas. Or, use my ideas as a starting point for your own research and due diligence. 

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Disclaimer: This article is for general informational and educational purposes only. It should not be construed as financial advice as the author, Ted Stavetski, is not a financial advisor.