The AI Groundswell

• Several US companies are looking to take the lead in AI-linked revenues.
• How have the AI-linked companies performed thus far, and what’s the outlook?
• Which Australian stocks are likely to benefit from this rising AI tide?

The path to Artificial Intelligence

Artificial Intelligence (AI) has been primarily used recently as a catch call for a large swathe of powerful algorithms and data analysis that included both complex pattern identification and machine learning.

Several multinational corporations with big balance sheets and large technology budgets have been ramping up their machine-learning and data-analysis capabilities for several years.

The exploration and production arms of oil majors like BP plc LSE:BP (BP) and Exxon Mobil NYSE:XOM (XOM) have used large data models and analyses to inform drilling and production decisions for many years.

Big financial institutions like JP Morgan Chase NYSE:JPM (JPM) have used machine learning to shore up internal governance and improve transaction execution.

Alphabet, doing business as Google NASDAQ:GOOG (GOOG), released its Google translate function, which ushered in the latest iteration of AI in Large Language Models (LLM).

The evolution of AI

Until recently, machine learning primarily meant storing and reading vast swathes of data, recognising patterns imperceptible to the human eye, and making commercial decisions on those patterns before the competition.

The next stage, which has the technology field and the stock market excited, is centred around large language models (LLMs) that more closely resemble human intelligence. Trained on past online conversations, LLMs can form conversations and translate them into actionable output.

Requiring powerful microchip processing capabilities and access to large data repositories, LLMs are proving to be able to perform a vast number of menial and technical tasks.

OpenAI ChatGPT is one of the first commercially available LLMs, and its success is due to its incredible utility. ChatGPT can mock up simple legal contracts, provide business communications from simple thread prompts, debug computer programs, and much more.

Despite being only the first LLM widely available to the mass market, ChatGPT is the fastest-growing internet application in history, a testament to its incredible utility. It is envisioned that the versatility of the LLM will boost worker productivity and generate new jobs that mesh existing infrastructure to the new models.

Future models

Microsoft Corp NASDAQ:MSFT (MSFT) is one of the largest investors in OpenAI and is now Beta testing a version of ChatGPT on its search engine, Bing.

Google has released a version of ChatGPT to Beta testing in recent days, looking to capture some of the success of ChatGPT. Google is no new entrant to the space, having developed its proprietary language model, LaMDA. The company has invested billions in the technology space and application discovery.

Stock market

LLMs require additional processing capabilities due to the complexity of the models operating these new functions. NVIDIA Corp NASDAQ:NVDA (NVDA) has ridden the rush of interest in powerful cloud processing solutions, climbing 47% on the year.

Microsoft (MSFT) is up 8% year to date; the stock is rallying on investor interest piqued by the new AI revolution.

GOOG perceived lagging of MSFT in beta testing, and the release of their AI-powered chatbot “Bard” has GOOG stock trailing that of MSFT, up 7% this year. S&P/ASX 200 ASX:XJO (XJO) is up 4% on the year. It has been led by the raw materials S&P/ASX 200 Materials ASX:XMJ (XMJ), which is higher by 7%.

With the coming wave of AI applications, it may be an opportune moment to review one’s exposure to S&P/ASX 200 Information Technology ASX:XIJ (XIJ).