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Three ways artificial intelligence could change the markets

The unlimited potential of artificial intelligence (AI) has made the technology an object of both excitement and fear in recent years.

While AI is unlikely to bring an end to humanity — at least not in a fiery blaze — it will transform how people interact and perform tasks, and this could make certain jobs obsolete. AI is already changing many aspects of modern life, affecting everything from companies creating more efficient supply chains to modelling tailored nutrition plans for those with certain allergies. 

Alphabet [GOOGL], the parent company of Google, is the prime example of a tech behemoth leveraging AI in its products and services. Google’s search engine uses the technology to enhance advertising campaigns and improve the accuracy of translations, while Google Maps uses AI to determine the best routes and predict arrival times. 

With AI likely to continue influencing our lives, how can you play the theme as an investment opportunity? We highlight three areas where AI is set to play a key role. 

 

The medical AI market

Stay-at-home orders and social distancing measures mean that many GPs and physicians have turned to remote consultations. However, this can make diagnosing patients a challenge. Services and tools powered by AI can analyse medical literature and provide data-driven suggestions. These then allow GPs and physicians to make more informed decisions. 

This trend has helped boost the share price of virtual care solutions provider Teladoc [TDOC]. Teladoc’s share price has climbed 158.58% in the 12 months to 4 February’s close — the stock is also up 37.99% for the year to date. For the three months to the end of September, Teladoc reported revenue of $288.8m, up 109.3% on the $138m reported in Q3 2019 and up 19.8% on Q2 2020 revenue of $241m. 

The stock is also a key holding in the ETFMG AI Powered Equity ETF [AIEQ]. The fund is up 35.44% for the year to 4 February’s close and has gained 13.33% so far in 2021. 

Although the healthcare sector could rely less on video consulting post-pandemic, people may still be willing to pay for telehealth services like those provided by Teladoc and Amwell [AMWL]. Google’s cloud division invested $100m in the latter firm ahead of its IPO back in September. 

Healthcare AI will be worth $45.2bn by 2026, growing at a compound annual growth rate (CAGR) of 44.9% on the $4.9bn it was valued at last year, according to Markets and Markets. 

 

$45.2billion

Projected healthcare AI market in 2026

 

Another potentially exciting medical use of AI, still in its infancy, is drug discovery and development. In December, it was reported that pharmaceutical giant Eli Lilly [LLY] would be investing circa $75m in UK drug developer BenevolentAI. 

 

AI and transport

Transport is another aspect of everyday life that the coronavirus pandemic has transformed. Travel patterns have changed, commutes made by public transport have reduced, there are more cyclists on the roads and the rush hour is a distant memory for many. 

The impact of COVID-19 on human mobility has highlighted the need for smarter transport infrastructure and devices that can help predict the unpredictable. These include augmented-reality dashboards and smart sensors in traffic lights that feed real-time data to smartphones. 

Investment in smarter transport infrastructure will also be needed to help countries realise their transition to electric vehicles. The global smart highway market is set to be worth $92.38bn by 2026. China Mobile [0941.HK] previously announced the world’s first 5G highway, which will enable AI traffic monitoring and support autonomous cars.

 

$96.38billion

Projected smart highway market in 2026

 

One company that offers exposure to smart transport infrastructure is Nvidia [NVDA]. Its AI platform can process the massive amounts of data required for a safer self-driving experience. The startup Perceptive Automata has used Nvidia’s platform to collect human behaviour data to predict pedestrian movements. 

The stock is one of the top holdings in the Global X Robotics & Artificial Intelligence ETF [BOTZ]. The fund has climbed 5.48% so far in 2021 and boasts gains of 55% in the last 12 months (through 4 February’s close).

Mitch Steves, analyst with RBC Capital, believes that Nvidia’s $40bn acquisition of chipmaker Arm will help the company grow its AI business and accelerate its capabilities and applications for self-driving vehicles and data centres. “Nvidia will extend its architecture and offer [AI] or ‘acceleration-in-a-box’ for all Arm-based chips,” he wrote in a note seen by Investor’s Business Daily

“Instead of looking at Arm as a potential CPU play alone, we think the bigger picture is that 22 billion-plus Arm chips can be accelerated with AI,” Steves added.

 

"Instead of looking at Arm as a potential CPU play alone, we think the bigger picture is that 22 billion-plus Arm chips can be accelerated with AI" - Mitch Steves, RBC Capital

 

Work-from-home AI

With companies forced to shut offices and employees working from home, more pressure has been placed on cloud servers and data centres. 

If the remote working trend continues post-pandemic, then the adoption of AI — along with 5G and the so-called Internet of Things, whereby physical objects such as fridges and cars are connected to the web — will only grow further. AI will be mission-critical for enterprise applications as more businesses and industries embrace digital transformation and smart infrastructure to optimise processes and improve the efficiency of their operations.

At the forefront of this revolution will be companies including C3.ai [AI], which began trading publicly in December.

In a note to clients seen by Seeking Alpha, Dan Ives, analyst with Wedbush Securities, wrote that C3.ai is a disruptive enterprise software vendor, initiating his coverage of the stock with an outperform rating and $200 price target — 29.56% above its closing price on 4 February.

“In particular, the secret sauce of the C3 architecture makes it easy to deploy and scale within a given enterprise.” Ives added: “[C3] is the LeBron of AI setting up for massive growth.”

Patrick Colville, analyst with Deutsche Bank, is slightly more cautious on the stock, initiating his coverage with a hold rating and a price target of $120. 

In a note to clients, he wrote: “Despite the benefits of [AI], enterprises have struggled to deploy AI in production environments.”

Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

*Tax treatment depends on individual circumstances and can change or may differ in a jurisdiction other than the UK.

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