MUST READ - An Introduction To Investing In AI
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The Prudent AI Investor: Opportunities in Public Companies
By Andrew L. Jaffee for Cestrian Capital Research
Backgrounder
Here at Cestrian Capital Research, Inc, we’re building our business in an unusual way. By bringing folks on who actually know what they are talking about, rather than hiring fresh-faced naiifs right out of the gate. Our macro work is written by a former institutional rates trader. Earnings call analysis undertaken by a corporate turnaround specialist with a fine nose for things that smell a little off. Options analysis by a professor of data science. And so on.
Our latest author, Andrew Jaffee, is a longtime software developer and technology investor. This is his first piece of work for us; there will be many more. Here he takes on the topic of how to invest in Artificial Intelligence. Over now to Andrew.
Alex King, CEO, Cestrian Capital Research, Inc.
Introduction
In this article, I want to provide essential details about seven publicly-traded companies covered by Cestrian, all involved with AI, as investment opportunities. Still, I won't be able to do this effectively without introducing you to some basic AI concepts and terminology. Since there's a pervasive list of AI investing opportunities, the AI products and services provided by these corporations involve such complex software and hardware technologies, and there will be seismic societal repercussions due to AI's introduction, I will be writing a series of articles for Cestrian. For example, the next article will cover other public companies using AI but not covered by Cestrian, including some ETFs. Then I'll write a piece on some of at least 269 deals in which private companies have accepted seed to startup to later-stage funding since early 2022 and may eventually file with the SEC for Initial Public Offerings (IPO). Then I'll cover the theory behind AI, an explanation of how AI works, different types of AI, proving true machine intelligence, where you need to be especially careful with your money, and a discussion of the socio-economic-ethical issues that naturally come hand in hand with such transformative technology.
We've all been hearing the terms "artificial intelligence," "AI," "generative AI," "ChatGPT," and even "large language models" quite a lot, and rightfully so, as humanity has unleashed yet another revolutionary technology. AI discussion in social and mainstream media has escalated from journalism to hyperbole. Some claims published have been wildly exaggerated; in one case, an alleged prime-time cover-up occurred. But that's typical of the latest fad, especially one this big. Since money has already been made using new generative AI tools that debuted barely six months ago and from other forms of commercially-available AI that have been around longer, it's clear that there's a bonafide investing opportunity in AI. You can buy affordable AI products now. People have already used AI with products like Siri, Cortana, and Alexa. You can even try AI for free. For example, the well-known stock photo site 123rf.com started allowing the submission of images created by generative AI text-to-image apps. You may also be familiar with the concept of Machine Learning (ML), a subset of AI.
These actual companies are making real money with authentic AI products and services can generally be separated into three categories: building the AI software code and data models ("AI tools"), manufacturing the hardware on which AI software runs and accesses related data models, and using AI tools for specific applications.
Sharp investors already have made money in the sector, and many AI stocks have already been bid up. Throughout this series, remember that, if you want to buy individual companies—even invest with semi-diversified ETFs—you need to be an informed investor with a cool head. This is a mania. Remember what happened with cloud/SaaS stocks in 2021/2022?
Below I talk about Microsoft’s early lead, tailwinds to early adoption, I cover what exactly is generative AI, and I run through a subset of companies within Cestrian’s coverage universe that can give you some exposure to these theme.
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