In 2023, companies related to artificial intelligence technologies experienced significant earnings growth compared to other industries, with their stock prices demonstrating triple-digit growth.
Analysts estimate the size of the artificial intelligence market in different ways. According to the most conservative estimates by MarketsandMarkets, the volume of the global AI market in 2023 amounted to $150.2 billion. Next Move Strategy Consulting estimates the global AI market at more than $200 billion. Fortune Business Insights, an Indian consulting company, has the most optimistic data, forecasting the AI market to grow from $515.31 billion in 2023 to $2 trillion by 2030. The average annual growth rate is expected to be between 21.6% and 36.8%. According to Goldman Sachs, the economic effect of AI technologies may amount to $7 trillion worldwide over the next ten years.
In 2023, companies in the large technology sector earned more compared to other industries. Google's net profit in 2023 was $77 billion, Microsoft's profit was $73 billion, and Meta's profit was $45 billion. These optimistic figures are reflected in investor behavior. In 2023, the Nasdaq Composite index, where all big tech companies are concentrated, jumped by 43%. The iShares U.S. Technology ETF, the largest exchange-traded fund focused on technology companies by capitalization, increased by 66% last year.
The enthusiasm surrounding AI has led to sharp increases in stock prices. For example, in January 2023, the shares of the American online news publisher BuzzFeed soared by 129.6% after the company announced it would use AI to write articles.
Despite concerns about a potential stock market bubble, experts believe the current AI market levels are justified. AI-based products are in real demand among large investors such as Google, Microsoft, and Nvidia, as well as venture funds and ordinary consumers. AI technologies are developing quickly, with expanding applications creating opportunities for further growth. However, competition is expected to increase, and some companies may fail, similar to other industries.
The NASDAQ index is considered justified based on fundamental indicators, with the price/forward profit indicator at 26.5 and the price/profit indicator for 12 months at 33. Over the past 12 months, the profit growth of companies in the index has been 14%. Long-term investments in AI are considered justified, although short-term market cycles may influence growth.
The AI industry is predicted to have a great future due to the rapid increase in AI applications, expansion of partnerships, increase in small AI providers, and growing demand for personalized services. Government initiatives and investments in AI technologies are also expected to benefit the industry. Additional spending of $1 trillion over the next decade will significantly impact the software ecosystem and the broader technology sector.
The current P/E multiplier of the US technology sector is at 33, reflecting expectations of aggressive profit growth. Although this indicator is high, it is still below the dot-com bubble highs of 45. The AI sector may appear overbought in the short term, but the industry's long-term growth potential remains strong. Many AI-related companies exhibit strong fundamentals and significant growth potential, making them attractive for investment.
AI stocks can be categorized into blue-chip technology companies that invest in or collaborate with AI developers, and smaller IT startups directly developing AI products. Startups often collaborate with larger players for infrastructure and funding. Investing in AI developers directly is challenging as they are usually non-public or part of larger companies. However, investing in the largest shareholders of these startups, such as Microsoft with its investment in OpenAI, is possible.
Some notable AI companies include:
1. Nvidia (NVDA) - A leading manufacturer of high-tech chips, providing the computing power needed for advanced AI applications. Nvidia's shares have risen over threefold in the past 12 months. The company expects to generate $24 billion in revenue in the current quarter.
2. Meta Platforms (META) - The market leader in social media and online advertising, developing a new AI system comparable to OpenAI's most advanced model. Meta's shares have grown by 186% over the past year.
3. Amazon (AMZN) - Integrates AI across its business, including targeted advertising, on-site search, and recommendation algorithms. Amazon offers a wide range of AI and machine learning services through Amazon Web Services. AMZN shares have grown by 87% over the past year.
4. Microsoft (MSFT) - A leading AI company with significant investments in OpenAI. Microsoft is strong in cloud applications using AI and expects continued growth. MSFT shares have risen by 64% over the past 12 months.
5. Alphabet Inc. (GOOGL) - The parent company of Google, a dominant force in AI with extensive data infrastructure and machine learning capabilities. Alphabet's P/E ratio indicates potential for share price growth. GOOGL shares have grown by 61% over the past 12 months.
6. Taiwan Semiconductor Manufacturing (TSM) - The world's largest semiconductor manufacturer, producing AI chips for Nvidia and other companies. TSM shares have risen by 34% over the past 12 months.
7. Baidu (BIDU) - A leading search provider in China, actively investing in AI. Baidu's investments have begun to yield strong results, with shares showing a bullish trend in early 2023.
For a diversified investment approach, ETFs focused on AI are recommended. Examples include:
1. Global X Robotics and Artificial Intelligence ETF (BOTZ) - Based on the Indxx Global Robotics & Artificial Intelligence Thematic Index.
2. Nasdaq CTA Artificial Intelligence & Robotics Index (ROBT) - Tracked by an ETF with the ticker ROBT.
The largest American stock exchange-traded funds related to AI include:
1. iShares U.S. Technology ETF (IYW) - Tracks the Russell 1000 Technology RIC 22.5/45 Capped Index, with a total capitalization of $15.6 billion. IYW shares have increased by 59.07% over the past 12 months.
2. Fidelity MSCI Information Technology Index ETF (FTEC) - Aims to match the MSCI USA IMI Information Technology index, with total assets of $9.1 billion. FTEC shares have risen by 46.6% over the past year.
3. First Trust Dow Jones Internet Index Fund (FDN) - Follows the Dow Jones Internet Composite Index, with a total capitalization of $6.3 billion. FDN shares have increased by 46.8% over the past 12 months.
Comments