By Christine Idzelis
‘It’s actually kind of startling how narrow the impact’ of AI has been in the stock market so far, says Steven Wieting, chief economist and chief investment strategist at Citi Global Wealth
The buzz around artificial intelligence may resonate across industries, as investors attempt to identify the stock-market winners as generative AI takes off.
“It’s actually kind of startling how narrow the impact has been in terms” of investor enthusiasm building around just a few companies in the stock market, said Steven Wieting, chief economist and chief investment strategist at Citi Global Wealth, in a phone interview. “AI could have pretty profound effects throughout the economy.”
Investors have been piling into chip maker Nvidia Corp.’s stock, expecting the company will benefit from the development of generative AI. Shares of Nvidia (NVDA) continued climbing Friday, after surging more than 24% on Thursday to close at an all-time high based on data going back to January 1999, according to Dow Jones Market Data. The semiconductor company’s gains so far this year have skyrocketed to more than 165% based on Friday afternoon trading.
Dispersion within tech tends to be wider than in many other industries, as a company with the best technologycan wind up being “winner-takes-all,” according to Wieting.
Meanwhile, exchange-traded funds that focus on AI as an investment theme have recently jumped, outperforming the broad stock market on Thursday with sharp gains that extended into Friday afternoon.
See:AI-themed ETFs jump as Nvidia surges
Artificial intelligence is “incredibly powerful and has potential for impact across nearly every industry,” said Dave Mazza, chief strategy officer at Roundhill Investments, in a phone interview.
The Roundhill Generative AI & Technology ETF (CHAT), which counts Nvidia, Microsoft Corp. (MSFT) and Google parent Alphabet Inc. (GOOGL) among its top holdings, closed 3.3% higher on Thursday to beat the S&P 500 index’s 0.9% gain, according to FactSet data. The actively managed fund, which launched this month, was again trading up more than 3% on Friday afternoon, outperforming the S&P 500 , according to FactSet data, at last check.
“Generative AI is the topic du jour,” said Mazza, after “it really came to bear with the introduction of OpenAI’s ChatGPT around November.” ChatGPT seems to be “a more intuitive search model or search engine,” he said, and yet that’s “just scratching the generative-AI surface.”
The technology could be used in creative industries, potentially augmenting what humans can do in the design of art, cars and buildings, according to Mazza. And in healthcare, generative AI may lead to more personalized treatment plans, he said.
Ivana Delevska, founder and chief investment officer of Spear, said in a phone interview that AI is an “important” thread running across the portfolio of her Spear Alpha ETF (SPRX), from the semiconductor industry to cloud companies to cybersecurity. The fund, whose top holding is Nvidia, has soared more than 45% so far this year, based on Friday afternoon trading.
“We like cloud stocks as a way to get exposure to AI because you’re going to see massive amounts of data that need to be managed,” said Delevska. “Another area that we like is cybersecurity,” she said, because as artificial intelligence “becomes more prevalent you’re going to see cyber threats be AI-based.”
While Microsoft, Alphabet, Amazon.com Inc. (AMZN) are giant “cloud stocks” that may benefit from the scaling of AI, Delevska said that the Spear Alpha ETF aims to capture returns from midcap companies such as Cloudflare Inc. (NET), Snowflake Inc. (SNOW) and Datadog Inc. (DDOG).
The ETF is “very concentrated,” holding around 20 companies, she said, and it’s “very active.”
As for cyber companies, Delevska said she likes stocks such as CrowdStrike Holdings (CRWD), Zscaler Inc. (ZS) and Palo Alto Networks Inc. (PANW). “Those companies have been able to come to market with AI-based solutions over the past five years,” she said.
After last year’s stock-market carnage in the technology industry, semiconductors stocks have bounced back and other areas of tech may follow in the second half of this year or in 2024, according to Delevska.
Cybersecurity companies should provide “fertile ground” for investment opportunities along with semiconductor equipment manufacturers for chip makers like Nvidia, said Citi’s Wieting. AI is expected to create a “massive” source of demand for computing power, he said.
“It’s a macro-level disrupter, in my view,” Wieting said of AI. It can both replace and “augment a lot of human skills.”
Meanwhile, the tech-heavy Nasdaq Composite has soared this year, with the index up more than 24% based on Friday afternoon trading, according to FactSet data, last check. That compares with a gain of around 26% for the ARK Innovation ETF (ARKK) so far this year.
Nvidia was not held by the fund on Friday, based on data on Cathie Wood’s ARK Investment Management’s website. The ETF’s Tesla Inc (TSLA). was its biggest exposure, the holdings data show.
AI’s “impact has been extraordinarily narrowly felt in equity markets,” so far touching just a few companies, said Wieting, but “a wider impact than just the initial build” should arise over time.
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