Why you can’t escape from investing in artificial intelligence?
If you are a long term investor and shy to invest in artificial intelligence (AI) you should know that the companies you invested in will be affected by AI, regardless in which business they operate. Specializing in AI can be a very powerful competitive advantage in the stock market.
AI has a huge growth potential:
AI is a game changer in many business areas, from healthcare to self-driving cars. Our life will be more and more occupied by artificial intelligence, even we don’t notice it.
A very good example of how AI changes businesses is the replacement of classic marketing by Online advertising techniques:
Digital marketing grows with double digit rates and at the same time, the revenue from online ads gets more and more concentrated into hands of few, i. g. Alphabet Inc owns more than 40% market share of US Digital advertising, more than double of Facebook’s share.
If you research the growth of digital advertising on the internet you will find arguments relating to more usage of internet, especially via mobile devices. Why people spend more time on the internet? And why the content on the internet is getting more interesting? If you open a web site of a mainstream publisher, for example, new york times, you will see (1) the content is free, you don’t have to pay like old times (2) you will notice advertisements from Google’s Adwords.
NY times needs Google advertisement service because AdWords is more efficient. A company would make more revenue for each dollar paid to Adwords compared to NY times’ own advertisement service if NYT would have one because Google’s artificial intelligence is more efficient on advertising. Google’s AI knows what would the visitors probably buy. And the reason for the free content is that google search with its own AI can provide more traffic to NY times.
Google’s search engine and AdWords/AdSense make possible for everyone to publish own content and receive income from Adsense. So, a new industry of free content providers is already a rival competition to main stream media.
But if we look at Financial Times, almost all content requires paid subscription and I didn’t see any Ads from AdWords. Eventually, the reason for that is Ads are not the main income for FT but paid subscriptions are. But at the same time, FT provides free content on social media because the artificial intelligence of the social media platforms will deliver FT’s content to its target audience who are the potential subscribers.
So, the main stream media losing its monopoly, influence, and importance, not because people spending more time on the internet. The main stream media is already present on the internet and on SM. The reason for the decline of main stream media is that social media platforms, search engines, and digital advertisement services changed the business of content publishing thanks to artificial intelligence. Without AI, what would happen to the Google search, facebook, twitter, and AdWords?
AI will change almost all business in a way we can hardly predict, for example, it will make cars safer; in the future, your health will heavily depend on it etc.. Regardless of which company you invested in, you cannot ignore AI.
The economic moat:
When AI penetrates in a new market it turns the business to a game of “the winner takes it all”. Google’s search engine owns the 80% share of world wide search engine market after Google comes Microsoft’s Bing with 7%. Microsoft as a tech – giant could not compete with Google despite all its advanteges.
Never forget the golden rule of investing:
Regardless how wide the economic moat is and how big the company is a creative start-up with an innovation can change the game and defeat the monopoly.
The economic moat of AI comes from its efficiency which needs data you have to provide. For example, if a company gives an ad on AdWords it can choose its target audience with certain interests or demographics. The efficiency of Adwords depends on the matching the right ads with rights audience. When you engage with Google products like the search engine, youtube or g+ etc. google collects data from your engagement and then, AdWords makes ad suggestions. AI evaluates the efficiency of the made suggestions, for example, whether the users click on the ads. The more Adwords gets efficient the more Adwords get used and so, Adwords will get more competitive. It is a positive self-feeding cycle which also explains why Google’s share in search engine market continuously grows.
As shown above, AI needs data because AI consists of self-improving algorithms. Without data, AI cannot improve itself and because of this, the tech giants Apple, Alphabet, Facebook, Microsoft etc. desperately need your data, especially your engagement with their products.
Artificial intelligence is already a core business of many tech giants.
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