Add articles to your saved list and come back to them any time.<\/p>\n
US tech firm Nvidia, which makes advanced chips needed to train and run artificial intelligence (AI) networks, recently upgraded its revenue outlook by 50 per cent, sending its share price soaring.<\/p>\n
The share prices of other US-listed companies, such as semiconductor maker Advanced Micro Devices and AI company C3.ai, have also shot up as investors hunt the next big thing in the booming AI space.<\/p>\n
<\/p>\n
Artificial intelligence has hit the headlines with investors likely weighing up the pros and cons of investing in AI companies<\/span>Credit: <\/span>AP<\/cite><\/p>\n However, while there can be big rewards for investors investing in tech stocks, there are also big risks warns Matt Wacher, the chief investment officer at Morningstar Asia Pacific.<\/p>\n \u201cWith AI, we are in the \u2018gold rush\u2019 stage, with investors jumping on board … it\u2019s very hard to discern who is going to win, particularly when some companies have such lofty valuations; it\u2019s fraught with danger,\u201d he says.<\/p>\n Nevertheless, AI is looming larger in the minds of investors with the publicity surrounding advances in chatbots \u2013 particularly the launch of ChatGPT last year \u2013 and other breakthroughs, such as a paralysed man who can walk naturally again with brain and spine implants that use machine-learning.<\/p>\n A report by Grand View Research estimates the size of the global AI market to be $US136.55 billion ($207 billion) in 2022 and is forecasting that to expand at an average compound annual growth rate of 37.3 per cent from 2023 to 2030.<\/p>\n \u201cThe continuous research and innovation directed by tech giants are driving the adoption of advanced technologies in industry verticals, such as automotive, healthcare, retail, finance, and manufacturing,\u201d the report says.<\/p>\n For some investors, investments in companies in the AI sector may look like a one-way bet, but tech has seen some spectacular falls from grace, one of the biggest of which was the \u201ctech wreck\u201d of early 2000.<\/p>\n Though the potential of the internet seen by investors in the 1990s eventually bore fruit, the sector become over-hyped with the share prices of some companies in the sector pushed into the stratosphere.<\/p>\n The market can punish individual companies when they fail to live up to expectations.<\/p>\n Cameron Gleeson, senior investment strategist at exchange-traded funds provider Betashares, says investors only need to recall how Alphabet [owner of Google] was punished by the market when Google\u2019s Bard chatbot underperformed on its first demonstration.<\/p>\n The chatbot gave a wrong answer in a promotional video to a concrete fact, with $US100 billion initially wiped from the value of Alphabet; though its share price has more than recovered.<\/p>\n Because of the stock-specific risks, investors may want to look to a well-constructed basket of stocks to help reduce concentrated bets on specific AI names, Gleeson says.<\/p>\n There are several exchange-traded funds (ETFs) listed on the Australian Securities Exchange that track an index of technology stocks, helping to spread the investment risk that comes from holding a couple of tech stocks directly.<\/p>\n Units in ETFs and bought and sold just like with shares in listed companies, with returns that match the index, minus a management fee and brokerage costs.<\/p>\n Morningstar\u2019s Wacher says: \u201cBig companies, like Microsoft, that have the resources and balance sheets… could win in AI, with lower risks for investors.\u201d<\/p>\n He says those who want to invest in AI would likely want to have only a small portion of their investment portfolio exposed to it, as with any higher-risk sector.<\/p>\n