The Kurzweilian Rate of Change concept explores how innovation is constantly developing exponentially. This theory has been adapted from Ray Kurzweil’s book The Singularity Is Near. While I often discuss it, it proposes that a higher level of advancement could be attained over time.
It took thousands of years for the wheel to evolve and become a chariot, hundreds of years more to develop into a car, and just dozens more to transform into an autonomous, computer-driven vehicle. This driverless taxi is on the verge of reality in only a few short years.
The rapid evolution of ChatGPT, a type of Artificial Intelligence, has me often asked: What’s the best way to invest in AI? Unfortunately, there is no simple response like “Buy Nvidia NVDA!” – instead, we can only watch and anticipate the next revolution that surely won’t be far off.
I invested in Nvidia in 2017 when it was split-adjusted at $7 per share, and I strongly believed its AI strategy would prove to be a long-term winner. Although I’m still bullish about its prospects, the current valuation of Nvidia has left me apprehensive of possible downside risk.
Following Cody Willard’s investing style, I asked Bard, Alphabet’s Google’s (GOOGL, -0.24%) rival to ChatGPT, to pick a stock he might like and write a 1,000-word article explaining his reasons behind it.
Nvidia, seen as a prime beneficiary and driver of the AI revolution, was Bard’s prediction as the stock I would likely like due to its innovation in this area. The AI revolution is something that I find incredibly innovative and appealing.
The emergence of AI and ML is growing the requirement for cutting-edge processors, prompting me to inquire about what stock I would pick. Advanced Micro Devices AMD -ChatGPT suggested 3.45% as an option.
AVOID THE CROWD
Given everyone I know is investing in the AI revolution, with AI-related stocks already having grown significantly from their lows of last year, and many trying to become an AI gurus, as well as AI programs recommending its importance – maybe the AI sector is now too crowded for me.
Innovation investing has become overly congested due to an influx of investors in the Artificial Intelligence sector. This state of over-investment has resulted in a highly competitive landscape, with too many players vying for a market share. This saturation reduces potential investment returns as competition drives up technology and product prices.
The AI Revolution has certainly created numerous opportunities for investors. Still, it is very crowded now as many investors are jumping into the same few companies, resulting in higher valuations and leaving little room to find a worthwhile investment.
Investors are highly keen to invest in the ground level of the AI Revolution due to its innovative prospects. This revolution will transform healthcare, transportation, and many other facets. This has made it one of the most electrifying and considerable revolutionary trends in these recent years.
Investors have been eagerly exploring the potential of AI startups, leading to a highly competitive market. However, with such a high concentration of companies in the early stages of development, it has become challenging for investors to find the most rewarding prospects.
I’ve been saying this for two years: investing in innovation is a highly crowded space similar to the dot-com investment scenario just before it imploded. However, I am confident AI will revolutionize and generate trillion-dollar returns shortly.
Avoid investing in AI stocks other than Nvidia, Alphabet, and Microsoft MSFT -0.99% now. Particularly falling short is C3.ai AI, -15.47%, which has prompted reports of accounting issues and lacks its original AI technology.
Additionally, steer clear of other microcap stocks which are believed to be AI-centric, such as BigBear.ai (BBAI, -17.91%), SoundHound AI (SOUN, -12.46%), and Sprinklr (CXM, -1.55%).
Investing in AI right now may not be seen as particularly contrarian since it is a very crowded sector. Yet, we doubt there will be the same level of hatred or apathy towards AI that came along with internet stocks in 2002 and technology investing in general from 2010-2018.
Cody Willard is the founder of 10,000 Days Fund Capital Management and a hedge fund manager of the 10,000 Days Fund. Contributing to this article is Bryce Smith, an analyst at 10,000 Days Fund Capital Management.
At the time of publication, Willard, Smith, and their hedge fund were holding equity positions on Apple Inc. (AAPL), Amazon (AMZN), NVIDIA Corporation (NVDA), Alphabet Inc. (GOOGL), and Tesla Inc. (TSLA). Additionally, they had put positions on Artificial Intelligence.
While AI presents exciting opportunities for growth and innovation, significant risks and uncertainties must be considered carefully. From potential ethical concerns and regulatory challenges to the unpredictability of the technology’s development, many factors could impact the success or failure of AI companies in the years to come.
As such, it may be prudent for investors to wait and watch the market before making any significant bets on this emerging industry. By staying informed and exercising caution, investors can navigate the rapidly-evolving landscape of AI and make informed decisions that align with their long-term financial goals.