Dear reader, if you have been keeping up with technology trends, you likely noticed artificial intelligence unlocking new capabilities at an incredible pace. From DeepMind beating world champions at games like Go and StarCraft to ChatGPT stunning the world with impressively eloquent conversations, AI clearly stands poised to transform every industry over the next decade.
And powering this rapid progress is research-focused company OpenAI, whose recent demos provide just a glimpse into their ambitions of developing artificial general intelligence surpassing human capabilities.
So in this beginner’s guide, I want to explore:
- The core technology allowing such exponential gains recently
- OpenAI‘s specific innovations and competitive standing
- Several routes for investors to capitalize on the rise of AI
- Key considerations around risks and growth trajectories
My goal is equipping you, the everyday investor, with the knowledge needed to evaluate opportunities in this space as AI shapes the future. Let‘s dive in!
Rapid Progress Unlocking AI‘s Potential
While AI research has existed for decades, the confluence of three key enablers recently catalyzed tremendous progress in machine learning:
1. New Algorithmic Frameworks
Statistical learning techniques like deep neural networks established more flexible and powerful approaches for machines to analyze data, identify patterns, and continue optimizing their own intelligence through feedback loops.
2. Explosion of Data
The exponential growth of data generation through sources like social media, content publishing, IoT sensors, fintech transactions, and more provides invaluable raw material for algorithms to derive insights from.
3. Improved Computational Power
Advancements like graphical processing units (GPUs) specialized for parallel processing have granted researchers unprecedented compute scale to train complex algorithms deeply on massive datasets.
Andcombining these ingredients enabled breakthrough innovations recently across areas like computer vision, predictive analytics, natural language processing, and more.
Adoption of AI accelerating exponentially (source: Annual AI Index Report)
As this chart highlights, we are still in the early phases of AI with hockey stick growth ahead.
OpenAI Driving Cutting-Edge Advances
Founded in 2015 to ensure AI benefits humanity, OpenAI adopts an open research model toward developing safe and trustworthy artificial general intelligence (AGI).
They utilize a technique called unsupervised learning allowing advanced algorithms to self-improve exponentially through ingesting billions of data samples. This led to breakout research results over the past year:
ChatGPT
This conversational agent can comprehend complex context and answer follow-up questions coherently on almost any topic while admitting mistakes. It displays frighteningly human-like communication ability.
DALL-E 2
This system generates highly realistic images and art from natural language descriptions. You simply describe a prompt like "an armchair in the shape of an avocado" and DALL-E renders it with extreme precision.
Both innovations highlight incredible progress toward artificial general intelligence rivaling humans. And OpenAI‘s research budget expanded over 10x recently to almost $1 billion annually as backers like Microsoft dedicate huge resources toward their mission.
Competitive Standing
OpenAI competes in an intense race with rivals like DeepMind and Anthropic to achieve AI supremacy.
Key players competing to drive AI innovation
DeepMind produces similarly impressive research results while Google parent Alphabet funds them lavishly. Independent lab Anthropic adopts a safety-focused strategy for AI progress.
Attracting top talent becomes crucial here with compensation packages soaring into the multimillion-dollar ranges for individual scientists across these powerhouses. Their budgets also expand rapidly to acquire more compute power needed to train advanced models.
While all trailblaze down unique paths, OpenAI‘s rapid advances position them strongly in leveraging AI commercially across healthcare, creative workflows, personal assistance, and more over the next decade.
Investment Avenues to Capitalize on AI‘s Rise
As excitement builds globally around AI‘s potential, how can everyday investors gain exposure to this promising theme?
Public Companies Driving Innovation
Several public companies focus directly on expanding AI capabilities:
| Company | Market Cap | P/E Ratio | Revenue Growth |
|---|---|---|---|
| Nvidia (NVDA) | $400B | 58x | 19% (YoY) |
| Alphabet (GOOGL) | $1.2T | 23x | 10% |
| IBM (IBM) | $110B | 67x | 7% |
Names like Nvidia, Alphabet, and IBM spend billions annually researching and commercializing various AI use cases in hardware infrastructure, predictive analytics, automation, and much more.
Their reasonable valuations, strong growth, and vast resources provide investor exposure to AI‘s burgeoning future through proven industry leaders.
Invest Alongside Strategic Partners Like Microsoft
Beyond direct AI innovators, Microsoft smartly cemented their technology partnership with OpenAI early on. They committed over $10 billion toward powering OpenAI‘s cloud infrastructure and productizing their models like ChatGPT across Microsoft‘s stack.
This huge bet highlights Microsoft‘s faith in OpenAI‘s talent. And the symbiosis here generates value for both sides.
As OpenAI relies tremendously on Azure and Microsoft‘s development platforms to drive innovations, Microsoft stock offers strong indirect exposure to OpenAI‘s advancements in AI.
AI/Robotics ETFs
For investors seeking diversified public market exposure to AI beyond betting on individual stocks, ETFs like BOTZ, IRBO, and ROBT from Global X, iShares, and First Trust provide a basket of stocks related to:
- Artificial intelligence
- Machine learning
- Automation platforms
- Big data analytics
- IoT and smart device ecosystems
- Advanced manufacturing technologies
These innovative themes will unlock tremendous value over the next decade. And ETFs offer low-cost access to 80-100 stocks strategically positioned across various aspects of AI, robotics, and data-driven industrial technologies.
Despite OpenAI still being private, some investors gain early exposure through platforms offering pre-IPO shares in startups.
For example, EquityZen allows qualified investors to purchase employee stock options or private company shares sold by insiders like early employees or investors. This grants direct exposure to OpenAI‘s future value.
However, while potentially highly lucrative if OpenAI continues excelling, pre-IPO investments come with amplified risks and liquidity constraints around holding private stock. So extensive due diligence becomes necessary here.
Venture Capital
Experienced VC firms also provide early access to emerging AI startups well before any public listing. For accredited investors, backing VC funds investing across spaces like machine learning, autonomy, precision robotics, neural networks, quantum computing, and more grants exposure to technologies that may one day rival Open AI‘s capabilities in driving innovation.
Top-tier VC firms like Andreessen Horowitz and Y Combinator support hundreds of early-stage startups poised to shape the future across aspects of artificial intelligence. Though risky bets on their own, assembling a basket of promising private innovators can yield strong returns.
Key Investment Risks to Consider
While optimistic around the long-term potential, risks around public perception, regulation, and responsible development still loom large for AI. Assessing the following areas helps gauge overall industry exposure:
Investors must monitor how companies address rising ethical concerns around AI
Public Perception and Ethics
Despite the promise, AI also introduces complex issues around data privacy, system bias, transparency, and job losses from automation. Public opinion may quickly sour if missteps occur around responsible development.
For example, Microsoft‘s Tay chatbot began spewing inflammatory and offensive language shortly after launch as trolls exploited its learning algorithms. And fears still linger from sci-fi depictions of AI turning against humans.
Maintaining public trust requires extreme care around testing and monitoring for issues. And the stakes here stay high for AI researchers in getting this right.
Regulatory Oversight
Governments are just beginning to address policies regarding ethical AI development practices and protocols. Future restrictions around data access or model use cases could limit commercial applications in areas like finance and healthcare.
And complex questions on proprietorship of AI output also require addressing sooner than later. Policy and regulations broadly remain behind the pace of technological progress in this arena.
Data Privacy and Security
AI systems rely heavily on data collection and retention for training algorithms. As public awareness and regulations around data privacy mature, increased constraints likely emerge on gathering certain personal or behavioral data historically available.
And security risks around stealing sensitive AI models or datasets pose severe threats for organizations developing proprietary systems.
Talent Competition
The tight race mentioned earlier around attracting top AI experts suggests potential for brain drain if compensation packages and research freedom falter at any leading lab. Offering the most empowering environments for talented scientists sustains crucial competitive advantage in the endless marathon ahead to develop more powerful AI.
While still the early innings, assessing strengths around ethics, governance, security, and talent management helps determine winners long-term.
Final Thoughts for the Everyday Investor
Artificial intelligence‘s hockey stick growth hints at a new era ahead where AI transforms businesses across the board much like electricity or the internet did previously. And powerhouses like OpenAI appear positioned squarely in the driver‘s seat toward capitalizing commercially on these emerging capabilities.
While directly investing in private leaders like OpenAI remains out of reach currently for everyday investors, public equities and ETFs offer several avenues to participate in the value creation ahead. And keeping an eye on rising startups in the space may unlock additional alpha over the long-run as well.
So as AI progresses rapidly from niche research disciplines toward widespread adoption transforming finance, healthcare, transportation, manufacturing, personal assistance, and more…
savvy investors stand ready to generate outsized returns through evaluating opportunities connected to players like OpenAI leading these breakthroughs.
The implications of artificial general intelligence promise improving virtually every aspect of business and society if harnessed responsibly. And hopes remain high around OpenAI pioneering those possibilities sooner than later.
