The Artificial Intelligence Market Will Only Continue To Grow

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Includes: AABA, GOOG, GOOGL, IBM, MSFT, SAP, TWTR
by: I Know First Research

Summary

Artificial intelligence will transfer from Artificial Narrow Intelligence to Artificial General Intelligence in the next 10 years and subsequently define our futures.

Many companies are well-positioned to benefit from the AI boom.

While IBM has a significant margin in AI patents over all its competitors, it is not necessarily the right investment.

Algorithmic prediction for which AI stocks to buy, and which to avoid.

Artificial Intelligence

Ray Kurzweil tried to estimate our brains computational power in computations per second (CPS), arriving at an estimate of 10 quadrillion CPS. The world's fastest supercomputer Tiahne-2 is beating that number, recording an astonishing 34 quadrillion CPS. Unfortunately it requires 720 square meters and $390 million to build, telling us how far we are from a brain powered chip.

According to this we can estimate based on Moore's Law (computational power doubles every 2 years) we can derive that by 2025 a 1000$ will buy a processor as powerful as the human brain. By this estimate in just 10 years our human kind will effectively have the technological knowledge to produce hardware able to take AI from Artificial Narrow Intelligence (AI that can only perform one task better than a human, such as playing chess), to Artificial General Intelligence (AI capable of performing most tasks a human can).

This we are far? Think again. Scientists today believe that they can slice the brain and upload its structure one by one to an AI. This means that if your brain was uploaded the AI would inherit your thoughts and memories, and of course intelligence (just like in the movie transcendence). Scientist have just uploaded a worms brain (320 neural networks) into a Lego robot. The human brain has over 100 billion neural networks, but at our rate of progress this is not undoable.

Image: In 1956, computer gaming pioneer, Arthur Samuel, wanted his computer to be able to beat him at chequers. Samuel then programmed his computer to play against itself thousands of times to the extent that the program accumulated sufficient knowledge of the game. By the 1970s, his program was proficient enough to challenge and beat the masters. Arthur Samuel is thus credited with being the pioneer of artificial intelligence (AI).

Machine Learning

Artificial intelligence has now become a colossal industry and is so widely used that it has literally transformed the way we conduct our lives and operate our businesses. All computer games, web-based advertisements, automatic language translators, self-driving cars and even Facebook and Google operate via AI. Just like the Industrial Revolution radically transformed the way mankind operated in the 18th and 19th century, so too AI has radically transformed our way of life in the 20th and 21st century.

There are two different kinds of AI; rule-based and machine learning. Rule-based AI is when an expert would design a set of rules for the program to operate on and the program would be unable to deviate from these set of rules. By contrast, AI based on machine learning is not bound by any set of rules. The program learns for itself and is able to independently make intelligent decisions. These AI programs operate on a specific computer programs called algorithms.

Today, we have more data, faster processors and larger computer memories than ever before. As a result, algorithms are becoming so broad-ranged and clever that incredible programs such as face-recognition, auto-translate and voice-controlled devices have now become the norm. Artificial intelligence has now become, or will become, a vital tool for any business or individual - including investors in stock markets. The computational power available today, in collaboration with the ability to store colossal amounts of data, allows us to do things that were simply not possible before.

Who is set to make money from the Artificial Intelligence boom?

The artificial intelligence industry is undoubtedly a market for the future. Many industries involving products or services that are operated by humans will soon be replaced by AI which will be cheaper and more efficient. Fears that the rapid growth in AI could lead to a rise in unemployment are not unfounded.

However, many companies have been shoring up patents in a bid to benefit from the inevitable growth in AI. IBM (NYSE:IBM) obtained the highest amount of patents related to AI. IBM's mega-computer - Watson - illustrates the way AI transforms companies, as it entered the healthcare sector in 2013 and helped decrease the error rate in cancer diagnoses by physicians. Likewise, Microsoft (NASDAQ:MSFT), Google (NASDAQ:GOOG) (NASDAQ:GOOGL) and SAP (NYSE:SAP) have also invested in patenting their AI technologies.

As well patenting their technologies, some of the major tech companies have been on an AI start up acquisition spree in recent years. In the last year alone Google has purchased at least six tech-companies involving technologies like image recognition, neural networks and natural language processing. Similarly, Yahoo (YHOO) purchased a variety of startups in a bid to boost its natural language processing and image recognition and less expected Twitter (NYSE:TWTR) and Home Depot (NYSE:HD) have bought out various AI technology start-ups to improve their companies and become more profitable.

Investors seeking to capitalise on the current and future artificial intelligence gold rush have invested substantial amounts of funds in AI startups, including Rethink Robotics ($127 million) and Sentient Technologies ($144 million). Some technologies such big data, voice recognition, and image recognition have had a strong push leading into 2015, here are some of the interesting funding going on in silicon valley.

Yes healthcare, technology, internet and renewable energy companies have performed well in recent years. But we truly believe that artificial intelligence is the future. If our neural networks could successfully learn and forecast financial markets over the last 4 years, than surely the world's leading tech firms can achieve other AI goals (non-chaos events are actually easier for AI technology to understand).

Yes healthcare, technology, internet and renewable energy companies have performed well in recent years. But here at I Know First where we use our AI technology to forecast money flow in financial markets we truly believe that artificial intelligence is the future. If our neural networks could successfully learn and forecast financial markets over the last 4 years, than surely the world's leading tech firms can achieve other AI goals (non-chaos events are actually easier for AI technology to understand).

With that said, if you do consider investing in AI firms/stocks you should inspect their strategy. Narrow AI is a short term investment, while general AI such as self-learning artificial neural networks is a long term value play. In either case this market is currently far undervalued, with analysts rarely accounting for its added value in the future. Based on the algorithmic signals generated by our algorithm IBM is currently overvalued, with Google and Microsoft making a more attractive long term AI investment.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.