We are in a bull market. I’ll say that again – we’re in a bull market.
The stock market has been bullish since early November. The economy continues to be strong. Employment is strong. Inflation, while still something to watch out for, has moderated sufficiently that the Fed felt it unnecessary to raise interest rates in their most recent update. And importantly, the debt ceiling limit deal has removed that wild card from the table for two years.
The market is back but consumer sentiment, as it usually does, lags. A scan of all the major sentiment indicators shows the bulls outnumbering the bears 2-to-1 although they’re still not more than 50% bullish as a lot of investors are still sitting on the fence.
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That makes this a great time to invest. And, one of the hottest areas of the economy right now is artificial intelligence (AI).
There are nearly 10 trillion web pages covering AI and Google News finds nearly 130 billion news stories on AI.
After decades of research AI has been moving into daily life for some time now. But the release of generative AI tools like ChatGPT late in 2022 has kicked off a flurry of news and product announcements that shows no signs of slowing down.
I should note that AI encompasses a wide range of technologies and a bunch of acronyms – ML (machine learning), NLP (natural language processing), ANN (automated neural networks) and more. Generative AI is the one getting the big attention because of ChatGPT (the GPT stands for generative pre-trained transformation). To help this make more sense, I’m including this definition of generative AI from Wikipedia:
Generative artificial intelligence or generative AI is a type of artificial intelligence system capable of generating text, images, or other media in response to prompts. Generative AI models learn the patterns and structure of their input training data, and then generate new data that has similar characteristics.
As my colleague Mike Cintolo, Chief Analyst of Cabot Growth Investor and Cabot Top Ten Trader, noted recently about Q1 earnings calls, 110 of the companies in the S&P 500 mentioned AI. And that number will only grow.
AI is the most broadly disruptive technology to come along since the World Wide Web in the mid-1990s. It is already impacting certain industries and virtually every other industry will be affected.
In addition to most industries, there will be functional AI developments that will cut across industries – customer service, human resources, sales, marketing, supply chain logistics, design, and many more. Very few jobs will be unaffected by AI.
As with any development of this scale, there will be winners and losers. Software tool developers and other tech industries are busily figuring out how to use AI to enhance their products of course, and almost certainly, like Betamax vs. VHS, some will succeed and some won’t.
A Goldman Sachs study published in April suggested generative AI alone could drive a 7% increase in global GDP over the next 10 years. Global GDP was approximately $104 trillion dollars in 2022. So, without even accounting for other areas of productivity improvements or demand growth, generative AI will add over $7 TRILLION dollars to the global economy by 2033.
Study Up
This is a good time for investors to get and stay generally aware of what’s going on in AI because it will directly impact the fortunes of many companies and entire industries or sectors of the economy. I don’t mean you need to have an engineering degree, but the impact will be far-reaching and in investing, as always, opportunity favors the prepared.
Investing in AI can mean the stocks of companies that are creating AI technology of course, but that’s just the most obvious place to start. There are a variety of infrastructure businesses (think chip manufacturers for instance) that will benefit. There will also be end-user industries that will see great enhancements in quality and productivity – from financial services to manufacturing and more.
There will also be long-term losers. Industries that will become obsolete or just become so commoditized that you’ll want to avoid or purge from your portfolio.
Beware
And then there are always the scammers who are attracted to whatever the “hot” topics are. It’s more of a micro- or nano-cap phenomenon but there are companies that magically pivot to use the latest buzzwords in the press releases in hopes of attracting investors to buy their stock even though they actually have no ability to benefit. And private placements have even more potential for inflated claims or outright fraud.
In addition, as with the advent of many new tech breakthroughs, there is likely to be a bubble. Prices will get pushed up too high and some technologies won’t pan out and the market will correct. That does not mean AI isn’t real. And, bubbles present opportunities to make money too, as long as you’re careful – a particularly good time to make sure you have expert guidance, like following our Cabot analysts’ research and recommendations.
Action Item
That said, there are small companies right now that are gearing up to make a huge impact and generate enormous profits. These will be the companies that ten years from now people will look back and wish they had bought when they were just $10.
While AI is on the minds of all of the analysts here at Cabot, I don’t think anyone more so than our small-cap and emerging tech expert Tyler Laundon, Chief Analyst for Cabot Small-Cap Confidential and Cabot Early Opportunities.
On July 13, Tyler will be presenting a free webinar 3 Little-Known Stocks to Take Advantage of the AI Boom. He’ll be talking about the AI investing opportunity generally and then share 3 specific stocks he has turned up in his research that are positioned for success and profits.
Again, it’s free to our readers so sign up today.
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