ChatGPT has caused a real hype in recent weeks. The software based on artificial intelligence can generate texts in a matter of seconds that are almost indistinguishable from those of a human being. How interesting are companies operating in the field of artificial intelligence (AI) for investors? VN spoke to Roland Rupprechter, MBA, CPM, CEFA, CEO of R&B Research und Vermögensmanagement in Dornbirn, about this.

Is it worth investing in artificial intelligence companies or is it a big bet?

Incredible progress has been made in computer science and artificial intelligence (AI) in recent years. In particular, the AI fields of machine learning and natural language processing are booming. In addition, neural networks are experiencing their second, this time very successful, rebirth thanks to improved AI processes and more powerful software and hardware. AI applications such as virtual assistance and chatbots are attracting particular attention from the general public. This has also been demonstrated in recent weeks when the American start-up OpenAI made its new chatbot ChatGPT freely accessible on its website - and triggered a worldwide hype. Within five days, OpenAI CEO Sam Altman reported more than one million registered users of ChatGPT. For context: LinkedIn launched the German edition of its business network at the beginning of 2009 - and passed the one million mark after just under a year in December 2009.

ChatGPT, Watson, Siri and deep learning show that AI systems are now performing at a level that must be categorised as intelligent and creative. Other trends such as multi-core architectures, improved algorithms and super-fast in-memory databases are also making AI applications attractive for the corporate sector. Here, AI applications are in the fields of medicine, big data, robot control, cyber security, content moderation, clouds, mobility (autonomous driving) and marketing (data-driven forecasts). Artificial intelligence has thus established itself as a key future technology alongside big data, the Internet of Things and nanotechnology. Against this backdrop, we do not see shares in AI companies as a bet, but as a promising additional investment for a broad-based equity portfolio.

How can investors profit from the hype?

AI shares are a great way to cash in on today's and the next technological revolutions. Anyone looking for shares with high profit potential should be aware that the sector is young and innovative and has comparatively high volatility and fluctuations. The tech giants Microsoft, Alphabet, Meta & Co. have substantial in-house developments in the field of AI and have well-filled coffers. They can afford to take over one or two start-ups. Anyone who owns shares in a potential takeover candidate in the field of artificial intelligence can make huge profits within a very short space of time once the takeover rumours start to spread. Conversely, however, there is also great potential for losses if a company in the AI sector fails. Take Augusta Intelligence shares, for example, which disappeared from the stock market following the insolvency of the previously hyped company.

For those who do not want to invest directly in AI shares due to the risks mentioned, AI ETFs, so-called Artificial Intelligence Exchange Traded Funds, as well as megatrend funds investing in AI are recommended. The advantage for investors is that they can spread the risk but still benefit from the potentially positive development of AI shares.

Which shares should be favoured?

We prioritise technology companies that have substantial in-house developments in the field of AI or are directly or indirectly affected by the changes brought about by AI. As many AI applications require enormous computing power with powerful chips, we favour manufacturers such as Nvidia, Intel, Qualcomm, Micron Technologies and Advanced Micro Devices.

For those who do not want to invest directly in AI shares due to the risks mentioned, AI ETFs, so-called Artificial Intelligence Exchange Traded Funds, as well as megatrend funds investing in AI are recommended. The advantage for investors is that they can spread the risk but still benefit from the potentially positive development of AI shares.

We also prefer companies that specialise in structuring and evaluating huge amounts of data. These include IBM, Splunk, Alteryx, Palantir and Trade Desk.

In the field of medicine, AI helps to recognise diseases or develop medicines by comparing huge databases. Personalised treatments, also based on genetic engineering, are also on the agenda. Our favourites here include Intuitive Surgical, Siemens Healthineers, Sartorius and Teladoc.

In the cyber security segment, where the detection of threats and lightning-fast reactions are supported by AI, we favour CrowdStrike and Cyber-Ark. When it comes to mobility, there are already numerous driver assistance systems in the autonomous driving sector that are suitable for everyday use. However, it will be some time before vehicle control can be completely handed over. It is primarily financially strong tech companies such as Apple, Baidu and Tesla that will prevail here.

In the CRM (customer resource management) segment, we are focusing on providers such as Twilio, Five9, Bill Holdings and Salesforce, which are working on the further development of promising intelligent customer care systems.

Microsoft, Alphabet and Meta should not be missing from a good AI portfolio. Microsoft has acquired almost 50 per cent of OpenAI and is also looking to profitably integrate AI functionalities into various Microsoft applications such as Github Copilot, Bing and Office applications. Alphabet is likely to benefit from the fact that it has already been active in the field of AI for years, for example with the "Language Model for Dialogue Applications" (LaMDA). Meta relies on the capabilities of its "AI Discovery Engine". Facebook, Instagram, Messenger and WhatsApp are no longer just organised around people and the associated topics, but users are increasingly shown more suitable content that has been recommended and selected by the AI system.

Is there an ideal time to enter the market?

In the long term, investors are doing everything right if they make a first partial investment today after last year's correction due to war, inflation and interest rates. Due to the expected fall in inflation by the end of the year and the first possible interest rate cut at the beginning of next year, a second partial investment in the second half of this year is recommended.