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Artificial intelligence stocks: a major growth theme for investors in next five years


Digital assistants, personalised film recommendations and customer services are all areas in our day-to-day lives where artificial intelligence is already being used. And while AI adoption has accelerated, there is significant room for growth, making artificial intelligence stocks an interesting opportunity for investors looking for a long-term theme to back.

The pandemic has further highlighted how useful AI can be in areas such as healthcare, biotech and even education.

A recent study led by Oxford University found that an AI screening test for Covid-19 delivered results 26% faster than lateral flow tests. Meanwhile, teachers in the UK are using an AI-powered system developed by London-based Century, to help students catch-up after months of home-learning induced by lockdowns. From healthcare to education and finance to manufacturing, AI is being used across a variety of industries.

In the US, 33% of businesses surveyed by PwC in a recent report said they had started integrating limited AI use cases this year. A quarter already have fully AI-enabled processes – up 18% year-on-year.

There is no question that AI, boosted by the pandemic, will continue to grow. Revenues from the AI market are expected to grow 15.2% year-on-year in 2021 to $341.8bn, according to the International Data Corporation. They are forecast to grow further in 2022, by 18.8%, and break the $500bn mark by 2024.

Artificial Intelligence stocks to invest in

Some of the largest technology companies are working with AI, making them potential ways to invest in this growing segment. These include Microsoft, Nvidia, Tesla and Facebook. But of course none of these are pure-play AI companies.

For those looking for more dedicated artificial intelligence stocks, there is still plenty to choose from, including in the US Nice (NASDAQ:NICE), Synopsys (NASDAQ:SNPS) and Trimble (NASDAQ:TRMB), and in the UK Sensyne Health (LSE:SENSS), Panopoly (LSE:TPXT) and Kainos Group (LSE:KNOS).

In addition, there is continuous innovation in the private markets, which ensures there is a pipeline of potential businesses that could come to the public markets in the future.

Quantum computing breakthrough

AI helps to drive higher levels of automation, cost-savings for businesses and faster decision-making. And according to the manager of Allianz’s Global Artificial Intelligence fund, there could be an even bigger market opportunity than past IT transformation areas as AI starts to become part of more applications.

In its most recent fund commentary, fund manager Sebastian Thomas wrote: “The recent introduction of quantum cloud computing could lead to significant breakthroughs in AI and machine learning in the coming years as researchers design new algorithms to exploit the exponentially faster computing power.”

But development of AI is expensive and it can take some time for businesses to see the benefits.

AI infrastructure

For a lot of investors, another way to access this growing segment is by focusing on the infrastructure that enables AI, such as semiconductors.

There has been a global shortage of semiconductors, which has benefited the share prices of such companies. The growth of AI will be a further boost for these types of businesses.

Managers of AI-focused funds – Allianz’s Thomas and Polar Capital’s Xuesong Zhao – are among the backers of semiconductor companies.

“In line with the upswing in other pro-cyclical areas, semiconductors have performed well fundamentally and in terms of share price. Looking forward, demand across many areas of end demand remains strong and supply is relatively constrained. We think these dynamics should remain in place over the next several quarters and are supportive of further upside in semiconductor shares,” Thomas noted.

Meanwhile, Zhao, pointed out that AI-related demand is expected to account for 20% of total demand by 2025, with Alphabet, Microsoft and Alibaba to “potentially derive meaningful revenue from offering AI capability as a service monetised via cloud computing”.

Here’s a selection of related ETF ideas

Product Name ISIN Exchange Ticker Listing Currency
WisdomTree Artificial Intelligence
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | Charles Stanley Direct | EQi
WisdomTree Cloud Computing
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | Charles Stanley Direct | EQi
WisdomTree Battery Solutions
Hargreaves Lansdown | Interactive Investor | AJ Bell Youinvest | Charles Stanley Direct | EQi

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This article does not constitute investment advice. Make sure you do your own research or consult a professional advisor.

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