Artificial intelligence (AI) could be one of the next great megatrends to affect society, potentially as impactful as the Industrial Revolution.
While there is some trepidation about this rapidly developing new technology, there is also an incredible amount of excitement and optimism. AI could upend whole industries and fundamentally change the way we all work. But it also has the capability to massively enrich and improve our lives.
In this article, we take a look at what makes AI such an exciting field to invest in. Then, we'll list some of the ASX stocks best positioned to benefit from the emergence of AI.
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What even is AI, anyway?
Our ideas about AI have changed a lot over the past few decades. We used to think of AI as the friendly robots that 'beep-booped' their way around the Star Wars universe.
But nowadays, in the era of ChatGPT and DALL-E 3, we're probably more likely to think of AI as a piece of complex computer software that we interact with on a computer screen than a clunky humanoid robot that follows us around on intergalactic adventures.
As our understanding of AI has changed and evolved, it has become a much more nebulous concept to define. Essentially, it is now an umbrella term that includes just about any computer process designed to simulate the patterns of human thought.
For example, ChatGPT is a large language model that is designed to produce fluent, human-sounding responses to just about any prompt. And, as I'm sure you're already aware, it's pretty convincing.
AI systems like ChatGPT use machine learning, an algorithmically driven process. In this process, the AI program is fed huge amounts of data, which it then analyses for patterns, connections, and correlations.
In the case of ChatGPT, if you give the program enough language data, it will begin to learn how language is constructed. Eventually, the program will be able to simulate that language and even generate its own unique responses to questions.
Why should you invest in it?
Putting all those uncomfortable Blade Runner-type questions about what it even means to be human anymore to one side, today's AI technology is undoubtedly extremely cool. And it's developing at a rapid pace.
The commercial applications of AI are potentially limitless. Tasks that would normally take a human hours to complete, AI could bash out in mere seconds. It could replace a corporation's whole logistics, accounting and cybersecurity departments.
It could develop marketing campaigns based on a deep analysis of consumer trends, improve medical care, help advance scientific discoveries, and drive our cars for us.
Given its potential, AI could be a great section of the market to focus on for growth-minded investors. It does, of course, come with risks – the fast pace of development means that today's industry leaders might become tomorrow's laggards.
So, be sure to diversify across a few different AI stocks and balance them out in your portfolio with some less risky shares, like defensive stocks and blue chips.
ASX AI shares
Luckily for ASX investors, there are plenty of stocks available on the ASX that tap into the AI trend. Some develop AI technology, while others provide the infrastructure that supports it.
I've selected a bit of a mix below to give you an indication of the different ways you can gain exposure to AI.
NextDC Ltd (ASX: NXT)
AI programs like ChatGPT and other machine learning systems require huge amounts of data to function effectively. And all that data needs to be stored somewhere.
That's where NextDC comes in. It is a leading Australia-based company operating data centres in Australia, New Zealand, Japan and Malaysia. As AI technology continues to develop, demand for data storage will only increase, creating growth opportunities for companies like NextDC.
And the company knows it – it launched a $1.3 billion capital raise back in April to help finance its growth plans.
Telstra Group Ltd (ASX: TLS)
In addition to data storage, AI needs fast and reliable internet connectivity. As the nation's leading telco, Telstra could have the potential to be Australian AI's infrastructure backbone.
According to its website, Telstra's mobile network covers 2.7 million square kilometres of Australia's landmass – about 60% more than its next biggest rival.
Telstra is a good choice for income-seeking investors as it pays a consistent, fully franked dividend. Based on current prices, its dividend yield is a healthy 5%.
BetaShares Global Robotics and Artificial Intelligence ETF (ASX: RBTZ)
Exchange-traded funds (ETFs) are a great option for investors seeking diversified exposure to global AI stocks. When you buy a unit of an ETF like RBTZ, you're really buying a small ownership stake in a portfolio of stocks overseen by a fund manager.
This means that in a single trade, you can gain exposure to an entire industry.
The RBTZ ETF invests in companies worldwide that specialise in robotics, AI, automation, and driverless cars and have a market capitalisation of at least US$100 million.
Currently, the fund's largest holding is American tech company and AI champion NVIDIA Corp (NASDAQ: NVDA), which makes up about 10% of its portfolio,
