What Artificial Intelligence Stocks can do for your portfolio

Artificial intelligence stocks will continue to gain attention as AI gains popularity, but we believe established businesses using AI will benefit more than start-ups

Artificial intelligence (AI) is essentially the merging of today’s big computing with big data. This has resulted in breakthroughs in everything from creating machines that can recognize faces with more accuracy than a human, to building cars capable of driving themselves.

The concept fascinates a lot of people, especially investors considering artificial intelligence stocks. They visualize AI-equipped machines that will be able to, for example, carry on intelligent conversations without revealing they are less than human. No doubt AI will have greater impact on our lives as time passes. But we think investors need to exercise caution when looking for AI stocks to buy.

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Artificial Intelligence technology and human intelligence

Computers beat humans at games like chess because computers are inherently digital, and so is chess—there’s no better word. In a chess game, only a relative handful of moves exist at any one time. After each move, new possibilities come to light, but they all follow the same basic rules.

AI has an advantage over human intelligence in chess, because it has the data storage and computing power to look further into the future, based on all possible situations that follow each move on the chessboard. But that advantage is pretty much limited to highly specialized situations, with a limited number of rules and moving parts—like a chess game.

In real life, human intelligence has the advantage. After all, human intelligence works with analogies as well as digits. Human accomplishment rises out of learning the rules in a variety of situations, over the course of years or decades, then applying those rules in different situations, often totally unrelated. Much of this learning takes place subconsciously, but it’s there when you need it. Human achievement also requires emotional intelligence and intuition. High IQ alone helps if you want to excel at chess, but by itself it falls short in other areas of achievement.

People have a long record of guessing wrong about the impact of new technology, and on how long it will take for the new technology to become part of daily life. You’ll guess right much more often if you just assume that technological progress eventually leads to economic progress. You just need to keep in mind that false starts are common.

Artificial intelligence stocks can come from both venture capital firms and blue chip companies

Today, lots of venture-capital deals and junior stocks promise to unlock the financial potential of AI. Some may evolve into profitable companies, but most will stumble, as they always have in venture capital and junior stocks. The biggest, surest gains from AI will come from investing in established businesses that are already profitable and growing, and that can profit all the more by applying AI to their operations.

Are you interested in artificial intelligence stocks? Here are five companies that are already profitably taking advantage of AI, and are among the leaders in extending its use:

  • Cisco Systems: The company produces voice recognition AI that works across all apps and devices. It has also developed AI-protected network security.
  • IBM: The company’s Watson supercomputer can analyze the vast amounts of data needed for even the most complex AI. This has applications in industries from insurance to healthcare. Watson can also answer questions posed in natural language to extract meaning from photos, videos, text and speech.
  • Intel: The company’s AI chips already power Google’s self-driving cars. Additionally, Facebook uses Intel’s AI chips to do a wide range of things, including tagging people in images, translating posts from one language to another, and catching prohibited content.
  • Microsoft: The company is applying its huge library of AI patents to develop applications for its customers. These include using AI to power chatbots in Skype, analyze data in Office 365, build apps in its Azure cloud platform, support interaction with its Cortana voice assistant and match searches with results in its Bing search engine.
  • Symantec: The company is a global pioneer in AI that is used to ferret out potential cyberattacks from a maze of Internet traffic.

Our view is that if AI-verging-on-human-intelligence is coming, it will appear gradually, and in stages. Some of today’s AI start-ups may evolve into profitable companies. But the biggest winners from AI will be those companies, now in the middle of the risk spectrum, who use AI to find better ways to serve their human customers.

Use our Successful Investor approach when investing in stocks—including artificial intelligence stocks

Why have or haven’t you introduced AI-focused companies to your stock portfolio?


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