Artificial Intelligence

The Inflection Point

Artificial Intelligence (AI) is the ability of machines to perform tasks that would normally require human intelligence. The rise of computing power, along with digital data, is what makes AI so important today. Although forms of AI have been around since 1956, the next phase of artificial intelligence is only recently emerging.[1]. A recent UNESCO report estimates that artificial intelligence research has grown by 50% from 2015 to 2019. The combined research growth, along with the increase in spending, is creating a global technological boom in the field of artificial intelligence. The World Intellectual Property Organization has highlighted AI as one of the fastest growing areas in patent applications issued and filed. It has also been identified as one of the leading digital technologies in the Internet of Things (IoT), blockchain, metaverse, big data, and cloud computing.

The next wave of artificial intelligence is fast approaching. For example, Artificial General Intelligence (AGI) is a strong form of AI; and AGI has recently made breakthroughs in technological advancements. AGI is a machine that can match human cognitive power to perform any task, but with a much more advanced performance.

A great example of what AGI can be like is OpenAI, a private company started by Sam Altman and Elon Musk. Recently, OpenAI released a large language model called ChatGPT that demonstrates the power of AGI. ChatGPT is a chatbot that mimics human intelligence types. For example, ChatGPT can pass the Turing test, a method of measuring machine intelligence. Additionally, ChatGPT can pass the United States Medical Licensing Exam and Bar Exam. In short, the advancement of AI is impacting all sectors and industries. In addition to Open AI, there are several leading AI research labs working on AGI, such as DeepMind, a subsidiary of British Alphabet, and Meta AI Research.

The best way for investors to take advantage of advances in AI is through sectors that use AI-based tools and companies that use AI to increase productivity and efficiency.

[1] The field of Artificial Intelligence (AI) AI was born in 1956 by John McCarthy at the Dartmouth Research Project.

Sectors

At O’Neil Global Advisors we focus on small companies making capital in disruptive topics and fields like artificial intelligence. Similar to the Internet, artificial intelligence will revolutionize and disrupt many industries. AI is already used to some extent in many everyday applications, such as web search, user-targeted advertising, and software agents such as Apple’s Siri, Amazon’s Alexa, and Google Assistant. But, with new developments, AI will enable many other tasks such as allowing cars to drive themselves, computer programs to find drug treatments, and software to engineer code instead of the other way around. Initially, the sectors that should benefit the most from AI are Technology and Healthcare.

Technology: Many technology companies are using artificial intelligence today to create new products and services. For example, Baidu
BIDU
(NASDAQ: BIDU
IDU
) developed a tool called Deep Voice that uses AI to synthesize voices in seconds. Baidu uses the same technology to create a tool that reads books to you in the author’s voice. The whole process is automated thanks to the help of AI. Additional technology companies using new forms of artificial intelligence today are the following:

• Alphabet (NASDAQ
  The NDAQ
  : GOOGL) founded Google AI, Alphabet’s research division dedicated to artificial intelligence. The most notable product to come out of Google AI is TensorFlow, which allows neural networks to be used by the public. Additionally, Alphabet uses AI on YouTube to automatically detect and remove infringement. Using AI has resulted in an 85% reduction in content that violates YouTube’s policies.
• Meta Platforms
  FB
  (NASDAQ: META) uses AI to add structure to its data sets. For example, Meta Platforms uses DeepText, a text understanding engine, to identify and translate content in multiple languages. It then uses AI to automatically remove offensive images and text from its site.
• Microsoft
  MSFT
  (NASDAQ: MSFT) uses artificial intelligence in many of its products today. However, the company is expected to increase the use of AI in its products significantly in the coming years. Not surprisingly, Microsoft recently announced an additional $10 billion in Open AI, following its previous investment of $1 billion in 2019. Microsoft is thought to be using ChatGPT functionality in many of its products, such as Microsoft Office and Bing, the company’s search engine. the platform.

Exhibit 1: Technology Companies

Health care: Biotechnology companies are using AI in drug development, potentially creating new medicines. Traditionally, Biotechs use a loose measurement framework for drug discovery that is small and inefficient. However, Biotechs are now using large data sets with the help of AI to identify biomarkers of patient response. Morgan Stanley
MS
believes that AI-enabled early drug development success rates could lead to a $50 billion opportunity. Later, Biotechs increased their R&D budgets to invest more in AI:

Exhibit 2: AI Use as a % of Biopharma R&D

Investors seeking AI exposure through Biotechs may benefit from considering the following companies:

Exhibit 3: Healthcare Companies

The conclusion

Recent advances in artificial intelligence will have a major impact on many fields. Artificial intelligence will have an impact on global productivity as the internet has affected global connectivity. The two sectors currently benefiting the most from AI are (i) Technology and (ii) Healthcare. Investors can gain exposure to these groups by carefully considering the previously mentioned companies. The companies listed in this article are all large cap stocks as this is where most of the capital used for the article has been. However, we focus our research on finding small names for our portfolios that will one day become the next mega cap. Alternatively, risk-averse investors who prefer ETFs to stocks can consider the following ETFs:

Exhibit 4: Artificial Intelligence ETFs

Jason Thomson is a Portfolio Manager for O’Neil Global Advisors, Inc. He covers fundamental equity while overseeing idea generation, portfolio construction, and managing expected returns. Jason made significant contributions to the data collection, analysis and writing of this article.

References

How can I speed up drug discovery?. Morgan Stanley. (nd). Retrieved January 23, 2023, from https://www.morganstanley.com/ideas/ai-drug-discovery#:~:text=Biotechs%20are%20applying%20AI%20and,new%20drugs%20is%20costly% 20 guesswork.

Ask Allen. An Artificial Intelligence Primer. (nd). Retrieved January 23, 2023, from https://www.boozallen.com/content/dam/boozallen_site/sig/pdf/publications/the-artificial-intelligence-primer.pdf

Disclosure

No part of the authors’ compensation was, is, or will be directly or indirectly related to the specific recommendations or opinions expressed herein. O’Neil Global Advisors, its affiliates, and/or their officers, directors, or employees may have interests in, or long or short positions in, and may at any time buy or sell as principal or agent in the securities discussed herein. .

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