Probably no other investment theme in the technology sector holds as much promise or fills as many headlines as artificial intelligence (AI)—the science of developing computers that can "think" and work like humans. AI is spreading fast to a number of businesses that consumers interact with every day, and that trend will likely accelerate in the next few years. That's because global spending on AI and the related area of cognitive computing is forecast to reach close to $60 billion by 2021, in the process posting a compound annual growth rate of nearly 50% from 2016 through 2021.* Consequently, AI is no longer just a curiosity or buzzword, but a significant trend with increasingly important investment consequences.
Used in recent years by the leading global internet companies, AI is making its presence felt in a number of areas (see chart below). These include enabling streaming-entertainment providers to recommend video content, social network platforms to decide which ads to display, and e-commerce retailers to suggest which products to buy. AI also enables natural language processing for smart home voice recognition products. And, it provides the brainpower behind the face-recognition technology in smartphones, the computer-vision systems in driverless cars, and even the spam filters in your email.
AI is the future of technology. However, not all players will succeed as this future unfolds. The ones most likely to perform well over time will control large quantities of data and also have robust algorithms for analyzing all of that information. Hyperscale data center providers are front and center in this market because they can benefit from AI in 2 ways: AI directly benefits their own businesses—for example, internet search, social media, and e-commerce—and they can sell AI as a cloud service to other enterprises to improve their operations. By selling AI services, hyperscale data centers are "democratizing" AI and extending its reach to enterprises that lack their scale in AI computing power and programming talent.
Another class of companies set to benefit from the growth of AI is hardware companies—the providers of semiconductors, storage devices, and network equipment that are needed to support AI workloads on a sufficiently large scale. In particular, the market has recently rewarded chipmakers able to provide the sophisticated processing needed for AI. I expect this demand for hardware and infrastructure to remain robust, although investors will need to be nimble and stay up to date on new product cycles in order to identify the most promising providers.
The list of companies that have used AI to improve their products or services is rapidly growing. In addition to those consumer applications mentioned earlier, software makers have had considerable success using AI to improve the functionality of their enterprise applications. Office productivity, graphic design and video editing, and customer relationship management are just some of the areas where AI is being used successfully to improve user experiences.
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