Since being listed on Nasdaq in 2010, Tesla shares have increased by 19,175%. A £1,000 investment at the time of the EV manufacturer’s IPO, would now be worth over £190,000.
Like most investors, I’m on the lookout for the ‘next big thing’. Artificial intelligence (AI) is dominating the headlines at the moment, which makes me think some of the stocks in the sector could replicate Tesla’s success over the next decade or so.
The contenders
There are three companies that are at the forefront of AI.
Microsoft reportedly owns 49% of OpenAI, the developers of ChatGPT, having invested an estimated $13bn. The recent firing, and subsequent rehiring, of Open AI’s CEO has been a bit of a PR disaster. But normality has now been restored.
As an early adopter, Microsoft has a huge advantage over many others. According to the UK government, the cost of training a large language model is growing threefold each year. By 2030, it’s likely to cost “many billions“, compared to the estimated $50m needed for GPT4. This is a significant barrier to entry for those looking to compete.
And if the technology is to evolve, the amount of computing power needed is going to increase massively. Nvidia manufactures graphics processing units, a type of chip used by AI applications. Its share price has tripled since December 2022, making it the sixth most valuable listed company in the world.
For many years, Alphabet — owner of Google — has been investing heavily in the sector. During the third quarter of 2023, it incurred $8bn of capital expenditure mainly on AI-related infrastructure. But although it’s deploying machine learning in several fields — including its own chatbot (Bard) — some investors argue that it’s unclear how the company’s going to turn this into profit.
Uncertain outlook
Presently, there’s lots of uncertainty surrounding the industry.
If a sufficient number of influential figures believe that the technology has the potential to threaten the existence of mankind — as some have claimed — then it might not be long before it’s banned, or its use severely restricted.
But I think the jury’s still out on this. Further research is needed to fully understand the extent of the threat.
Until we know for sure, I believe those stocks exposed to the sector will increase in value more quickly than those outside the industry. But it’s too early to tell whether any of them will match Tesla’s success of the past 13 years.
According to Next Move Strategy Consulting, the global market will increase to $1.8trn by 2030 — an annual growth rate of 32.9%. And others predict something similar.
That’s why the next time I have some spare cash, I’m going to consider investing in AI.
But I don’t know which of the three stocks highlighted above might benefit the most from the expected growth — although as they’re among the most heavily invested in the sector, I think they’ll gain significantly.
To overcome this dilemma, I’m going to start looking for an exchanged-traded fund specialising in AI stocks. This will enable me to spread my risk over several companies. It also means I don’t have to decide now which company is going to grow the fastest over the next few years.
