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Hoping to invest in artificial intelligence? Today’s “niche” companies and those seen as AI leaders are unlikely to be the biggest winners for long-term investors, said Barry Glassman, a certified financial planner and member of CNBC’s Advisor Council.
“I’ve been through this enough to see that the niche players early on may not, in fact, be the long-term plays,” Glassman said.
AI is built to mimic a human’s cognitive ability — i.e., to think like a human. It allows computers and machines to perform tasks by themselves.
The technology isn’t new. But its prominence grew after the San Francisco-based firm OpenAI debuted ChatGPT to the public in November. The AI chatbot quickly went viral. Users leveraged the program to write essays, song lyrics and computer code, among other tasks.
Glassman thinks the technology will be just as transformative — and disruptive — as the internet.
“AI has the potential to transform every company and how we go about the world,” said Glassman, who is also founder and president of Glassman Wealth Services, based in Vienna, Virginia, and North Bethesda, Maryland.
Some of the big, early internet-related investments, such as AOL and Cisco, were “phenomenal” for investors in the first few years but weren’t the major players in the following decade or two, Glassman said.
A similar pattern emerged in the pandemic era, when companies such as Zoom and DocuSign saw their stocks surge initially due to a work-from-home boost in online activity but later fell back to earth, Glassman said.
The same will likely be true for AI, he said.
Not many niche companies exist for public investment right now — they largely appear to be private and will become better known in the coming year, Glassman said.
Dan Romanoff, senior equity analyst with Morningstar Research Services, echoed that sentiment, saying investors would be hard-pressed to find a good “pure play” AI company in which to invest today.
Instead, investors who want to participate in the “AI theme” would probably buy a “really strong, wide-moat” company such as Alphabet, Amazon or Microsoft, for which AI is one of many business lines, Romanoff said.
Nvidia, a semiconductor producer, has also benefited from AI enthusiasm, he said. The stock is up more than 200% this year, the best-performing member of the S&P 500 stock index during that time.
However, it’s unclear if such companies will remain among the AI leaders as the technology develops, experts said.
The largest beneficiaries may not even be technology firms, but those that use and benefit from AI products and services, Glassman said.
“The tertiary companies not directly involved in producing flashy AI uses may see a greater lift than a company like Microsoft that provides the engine of AI,” he said.
Consider biotech, pharmaceutical and logistics-management companies, which can leverage AI to innovate in previously unthinkable ways without billions of dollars in cost and associated risk, he added.
“I would ask the question: What company isn’t an AI company nowadays?” Glassman said. “And if they’re not today, just wait 12 months.”