It’s the question on the lips of many an investor today. There is currently a huge amount of hype around Artificial Intelligence (AI)—and it’s easy to understand why, as the potential of the technology becomes increasingly apparent.

The integration of AI into our everyday lives began in earnest with assistants like Apple’s Siri and Amazon’s Alexa, but this was just the prelude to the main event: Generative AI. Exemplified by tools like ChatGPT, Generative AI has numerous advanced applications, and its future appears limitless.

However, alongside the excitement, there is caution. There are many unknowns, there are teething troubles to resolve, and the technology poses potentially seismic disruptions for many industries—especially for professional content creators like artists, writers and graphic designers. Investors are left weighing up whether the promise of AI is worth the financial risk, or if the current hype is just another fad in the ever-evolving tech landscape.

Too Good to Be True? Unpacking the AI Hype…

AI has suddenly become mainstream, making its way into everyday technology at lightning pace—Chat GPT became the fastest-adopted new consumer technology in history earlier this year when it hit 100 million users in its first two months. It’s therefore easy to forget that it’s still an incredibly new technology, and the burgeoning AI industry has been met with both enthusiasm and skepticism.

For its supporters, AI is not just another new technology; it’s a paradigm-shifting advancement, akin to the internet or the smartphone, with unique applications across every sector and business function. It’s true that AI is already providing powerful solutions for industries as diverse as healthcare, finance and entertainment, as well as more obvious sectors like robotics and automotive.

On the other hand, tech companies continue to grapple with persistent challenges—especially when it comes to AI language models. A prime concern is their tendency to ‘hallucinate,’ or generate false information, a problem yet to be fully resolved. In response to this particular concern, Google has pointed out that their AI offering, Bard, is an ‘experiment,’ emphasizing the importance of user fact-checking. This admission only goes to highlight the fact that the industry remains in its nascent stages.

Indeed, predictions of AI’s inevitable dominance may be premature, and both tech companies and investors would be complacent to assume otherwise. Users are unlikely to embrace a technology that continues to fail in unexpected and frustrating ways. Furthermore, there’s also a growing risk of AI tools being exploited for malicious purposes by hackers.

It’s possible that the term ‘AI’ itself may be contributing to inflated expectations. It has become synonymous with ‘Machine Learning’ (ML) in popular discourse—a conflation which can be misleading. AI is the buzzword, but it is a broad, somewhat nebulous term that doesn’t denote specific methods or outcomes with any consistency. As such, it can oversell the practical capabilities of ML—and, thanks to a lack of strategic focus, only a minority of ML projects deliver on their promise. However, if implemented with a clear focus on adding value, machine learning has the potential to make tangible improvements to business processes. Understanding a new AI tool’s precise objective and function is therefore key in assessing its value.

So, should you invest in AI? Navigating the Investment Landscape…

Deciding whether to invest in artificial intelligence requires a nuanced understanding of the landscape. AI’s potential to enhance productivity is monumental, and with predictions suggesting it could add an estimated 7% to global GDP by 2030, the short-term outlook for AI is incredibly promising. However, identifying a sound investment opportunity in this rapidly evolving and unpredictable sector remains a challenge. And for investors, it’s essential to recognize that higher exposure to AI equates to greater potential rewards but also increased risk.

Reasons to Invest

One compelling reason to invest is the anticipated high growth rates in the sector. As the workforce in AI expands and their capabilities to innovate grow, artificial intelligence is expected to become even more influential. Investing in AI now positions investors to reap potentially huge rewards from its predicted growth in the coming years and decades.

Diversification is another key consideration. If we accept the premise that AI will fundamentally reshape economic operations, then investors can expect many of their current investments to be impacted. Including AI-focused companies in a portfolio can provide a shrewd hedge against any disruption caused by the technology.

Risks and Considerations

Of course, investments in AI are not without risks. Rules and regulations pose one of the most significant considerations. National governments and international organizations are currently playing catch up with the technology, and it’s unclear what restrictions, if any, will be placed on AI. However, the industry could potentially face prohibitions, taxes, fees, or added bureaucratic hurdles, leading to increased operational costs and potentially slower growth rates for companies in the AI sector.

Another critical risk is the inherent uncertainty in emerging and disruptive markets. The mortality rate of startups and new ventures in innovative sectors is high, and separating the future winners from the losers is never a straightforward process. The AI industry is based on a very young technology, so it will be particularly challenging to identify the companies and innovations most likely to thrive and generate sustainable cash flows for their investors.

Approach the Bubble with Caution!

AI is undoubtedly a key part of the future, but it’s crucial to approach it with a healthy skepticism. As always, investors should beware of the allure of tech ‘bubbles’ and the seduction of shiny new acronyms. Sticking to fundamental investment principles—rigorous research, solid market intelligence, and trust in a company’s founders—is essential.

Transforming a nascent technology into a viable business venture is about more than just the tech; it’s a complex, messy journey of iteration and adaptation. While the full scope of AI’s potential and its myriad opportunities are still unfolding, maintaining a balanced, informed perspective can guide investors through the disruptions and towards the rewards that this transformative technology may offer.