Artificial intelligence: Algorithms for the stock market

Artificial intelligence (AI) is braced to become a megatrend. The auditing and consulting firm PWC estimates the growth potential until 2030 at $15.7trn. This corresponds to an increase in global GDP of 14%.

In mid-August, Google assigned an artificial intelligence algorithm the task of controlling the cooling systems of a number of data centers. Drawing on a gigantic volume of data, the system learns by itself how best to adjust the various elements of the cooling systems in order to reduce power consumption. This is the first time that an autonomous industrial automation system has controlled a data center – without human intervention. It uses an algorithm that for two years has been providing recommendations to Google employees assigned with the task of operating the data centers. The energy requirements of these cooling systems have been reduced by 40% solely on the basis of these recommendations.

We expect the number of intelligent algorithms to increase rapidly. The exponential growth in data volume must be processed and channelled in the right direction. Big Data is the new force driving the economy, and anyone deploying data effectively will have the edge. Companies need to be able to analyse and capitalise data if they want to outpace the competition in the future.

Efficient application possibilities of AI signal good investment opportunities. Oil platforms, for example, have more than 30,000 sensors with information that is only utilised to a very small degree. AI can ensure significantly greater efficiency here. Another example is General Electric’s new aircraft engine where effective use of data can significantly improve both durability and safety. One of the greatest areas of application for AI is the healthcare sector were it can contribute to predicting cancer with increased probability. Although an algorithm will not be replacing a doctor in the near future, it will at least be replacing parts of his or her job.

AI signals above-average investment opportunities. But investors should be wary due to the hype surrounding the theme, as reflected in some stock valuations. The shares in Google not only offer relatively good value in this area; the Californian company is also well positioned thanks to the more than a dozen startups it has acquired from the AI sector in recent years. Moreover, the Google parent Alphabet is also itself a pioneer in many AI developments. For example, the internet giant is working on intelligent software programs for optically evaluating medical images and patient data.

And last but not least, the visionary management team has thoroughly grasped how to tackle the AI theme. The shares in Alphabet have therefore been given the highest weighting in the DNB Fund Technology.

More and more business concepts are based on successfully acquiring and analyzing data. Every company in possession of major relevant data sets and able to monetise them will benefit from AI. In addition to Alphabet and Facebook, these players also include the Chinese search engine operator Baidu as well as the Russian internet service provider Yandex. With the exception of Facebook, these companies are also excellently positioned in the field of autonomous driving. The US IT service provider Cognizant and, to a lesser extent, its French counterpart Capgemini support companies in how to use and monetize their data.

 

Mikko Ripatti is senior client portfolio manager at DNB Asset Management

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